Is It Too Late to Break Into Real Assets?

Real assets funds are becoming larger as established managers increase their market dominance across the real estate and infrastructure sectors, according to data from Preqin.

Real estate funds that closed in 2014 raised $90 billion in aggregate, Preqin reported, down marginally from the sector’s 2013 total—although additional data is expected to push the total above $100 billion, the data firm said.

“While fundraising is likely to be strong in 2015, we expect that capital will continue to be concentrated into a small number of funds.” —Andrew Moylan, PreqinHowever, the assets were spread across far fewer funds: 177 real estate products closed successfully last year, compared with 239 in 2013. In 2012, 263 funds closed with $69 billion raised.

In infrastructure, the data showed a similar trend. Funds raised a total of $38 billion, down from 2013’s total of $44 billion, while the number of funds closed fell from 69 to 42.

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This has pushed the size of funds up across the board, with the average real estate portfolio rising to $528 million, while infrastructure products averaged more than $1 billion for the first time since 2007.

Andrew Moylan, head of real assets products at Preqin, said fundraising was likely to remain “highly competitive” this year as investors become more discerning about the fund managers they select. This meant managers “must make a compelling investment case to attract capital”.

“Investors are becoming far more sophisticated in how they invest in infrastructure, with many increasingly targeting direct investments or co-investments,” Moylan added. “While fundraising is likely to be strong in 2015, we expect that capital will continue to be concentrated into a small number of funds.” Infrastructure, Real Estate Sectors' Historical Fundraising Source: Preqin

Blackstone’s Real Estate Partners Europe IV fund was the largest close in 2014, raising €6.6 billion ($7.8 billion) as demand for European assets soared. The largest infrastructure close raised $5.1 billion for the Energy Capital Partners III fund.

Legal & General (L&G) has hired from investment consultant Redington to drive its de-risking business, as the market started the New Year with a bang.

John Towner joined the insurer at the end of December, according to his LinkedIn profile, as head of origination for pension buy-outs, buy-ins, and longevity insurance.

Towner had been with Redington as a director of its investment consulting team since October 2012. He joined the firm after a 16-year career in asset-liability structuring within the banking sector.

He joins L&G as the insurance company has stepped up its attack on the de-risking market. By the end of the third quarter of 2014, it led the pack in the UK with a 40% share of the buy-out and buy-in market, according to data from consultants LCP. This was driven by a £3 billion buy-in with the ICI Pension Fund in the first three months of the year.

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This momentum continued and in November it secured a £2.5 billion partial buy-out of the TRW Pension Scheme as part of a “ground-breaking” risk transfer project. It claimed the deal was one of the largest and most complex completed in the UK to date.

A month earlier, the insurer’s investment management arm announced a “Buyout Aware” service for UK clients, which would lead them from a liability-driven investment product to a full buy-out.

This year, the de-risking sector has already taken off in the UK with the Merchant Navy Officers Pension Fund insuring £1.5 billion of pensioner liabilities against longevity risk.

A spokesperson at Redington confirmed Towner’s departure and wished him luck in the future.

L&G was unable to offer comment by press time.