Copyright: David Lawson/Financial Times - June 2000Home Page
One of the Europe’s biggest banks faced a tricky problem last year as it combed through a clutch of businesses accumulated over years of merger frenzy. On the one hand, Barclays was concentrating its drive for business on size: the word ‘big’ appeared everywhere in its advertising. On the other, it needed to dump non-core activities to compete in an increasingly aggressive global market. The real estate investment management division seemed pretty big, with almost £1.5bn worth of assets under its wing and annual pre-tax profits of almost £4.4m But this palled beside the £550bn of global managed assets and group profits of £3.5bn. Waiting in the wings, however, was another group desperate for size.
Martin Gilbert, chief executive of Aberdeen Asset Management, had known Iain Reid, head of Barclays Property Investment for years. He also recognized a short cut into to the real estate big league and happily forked out £20m to relieve Barclays of its little problem. Within nine months, two more little problems have been sorted out for giant Swedish and Dutch institutions, turning Aberdeen Property Investors [API] into one of Europe’s largest independent managers, with almost £6bn worth of assets. Nor does it stop there. Reid, now chief executive of API, aims to grow by another 50-100 per cent in the next three years.
Big is beautiful for investors, he says. Large clients feel more comfortable sharing the services of managers with other top names. Smaller ones like to benefit from the extra resources of a large group. Meanwhile, fashion is moving in favour of independent managers. Institutions are hiving off in-house teams in the drive for greater efficiency. Alecta, Scandinavia’s second-largest life and pension fund, parcelled up almost £2bn worth of property into Celexa, a group of three businesses covering the UK, Netherlands and Sweden. API won a tough battle with other management groups to acquire the operations two months ago for £16.5m, mainly in shares. Within weeks Reid had also paid RoProperty Holding BV more than £7m for RREEF UK.
There is more to the spending spree than size, however. The new Aberdeen Celexa Property Investors has opened up a variety of business routes. Former Celexa subsidiaries provide a foothold in the European mainland market, where Reid aims to cash in on the growing trend for institutions to outsource property investment. It also opens up new markets for the derivatives he pioneered at Barclays. Property Income Certificates, which enable investors to hedge against a central performance index were welcomed as a small step towards extra liquidity for real estate but have yet to develop a significant slice of the UK market. As indicies are launched in other countries, the potential must grow.
Limited partnerships have been more widely used as a liquidity play and these also form a big part of Aberdeen’s grand plan. It already runs a half dozen co-investment funds formed from securitising individual large properties like shopping centres and business parks. Recent additions cover whole sectors, such as the Regent Residential Partnership, and these could prove a fertile market for funds looking for international exposure. Celexa came with a ready-made £155m pan-European fund in distribution property and Reid is now thinking about similar launches in areas like hotels, serviced offices and shopping centres. That is why the battle to win the Scandinavian’s approval was so critical. ‘Cross-border mergers like this are of crucial importance,’ says Reid. European funds are already more willing to talk, not just because of Aberdeen’s size but its spread across a mix of markets.
Meanwhile a second role handling direct property business in the UK will be looked after by David Hunter, formerly managing director of RREEF. The highly-rated Hunter will now head Aberdeen Property Asset Management with £4.7bn of assets drawn from his old fund and those of Celexa UK and Aberdeen Property. Some insiders believe putting two single-minded Scots like Reid and Hunter in one harness is a gamble. ‘Will they both pull in the same direction?’ said one City analyst. But several fund managers who have worked with both were excited at the prospect of what might evolve from linking complementary skills in cross-border financial engineering and development. ‘We keep looking over our shoulders at the Americans taking over. Perhaps we should be more worried about the Scots,’ said one.