A raft of liquidity mismatch problems faced by open-ended funds and the increasing popularity of real assets and alternatives could prompt more asset managers to follow in Aberdeen Standard Investments’ footsteps with its stake in investment trust specialist Tritax.
ASI said it wanted to “evolve” its property offering when it this month announced its acquisition of 60% of logistics specialist Tritax, best known to UK investors for its £3.7bn Tritax Big Box Reit and £549.6m Tritax Eurobox investment trust.
“This transaction reiterates our commitment to evolve our real estate offering to ensure it develops with changing industry dynamics and client needs,” said ASI global head of real estate and deputy head of private markets Neil Slater at the time.
In March, two funds from the asset manager’s £37bn real estate investment arm were among the products caught up in coronavirus-related suspensions this year triggered by material uncertainty clauses relating to independent valuations. The Standard Life Investments UK Real Estate and Aberdeen UK Property funds reopened on 16 November, but approximately £5bn worth of assets held in open-ended direct UK property funds remain suspended.
“It wouldn’t surprise me if more asset managers were looking at specialist property companies,” says Quoteddata property analyst Richard Williams.
“Like Tritax, these companies have proven track records in driving returns from property and that is attractive to asset managers especially when compared to open-ended property funds. It does seem open-ended property funds have had their day, with huge liquidity mismatches being exposed in recent years.”
See also: ASI says its real estate offering has to evolve as it snags 60% stake in Tritax
The trio of funds giants with a foothold in property investment trusts
ASI is one of the few large asset managers that already has a foothold in the property investment trust space, including the £248.6m Aberdeen Standard European Logistics Income investment trust, which could be a merger candidate with Tritax Eurobox.
Square Mile chief operating officer James Glover therefore sees the ASI/Tritax deal as a “natural extension to an existing business that is already an important part of ASI’s offering to the UK investor”.
In the property space, ASI also runs the £1.3bn UK Commercial Property Reit, the £439.3m Standard Life Investments Property Income trust and the niche £143.9m Ceiba Investments, which taps into Cuban tourism and commercial real estate.
Schroders and BMO Global Asset Management are the two other large asset managers offering property investment trusts. Schroders runs the £437.8m Schroder Real Estate, £192m Schroder European Real Estate and £122.7m Ground Rents Income trusts. BMO Gam offers the £1.7bn TR Property, £1.2bn BMO Commercial Property and £334.7m BMO Real Estate Investments trusts.
But the rest of the property investment trusts and Reits in the Association of Investment Companies universe are made up of smaller or more specialist players.
In contrast, the Investment Association UK Direct Property sector is dominated by global asset managers. With the exception of Margetts Fund Management, Time Investments and Wellian Investment Solutions, which runs the VT Redlands Property Portfolio fund of funds, the remaining 12 asset managers with funds in the sector are industry giants, including the likes of LGIM, Janus Henderson and Columbia Threadneedle.
“The property Reit space would benefit from working with some of the larger fund managers who have strong brands and established distribution networks,” says Willis Owen head of personal investing Adrian Lowcock.
“However, Reits are frequently part of much larger global property groups so it isn’t that simple. But the fact remains the size of some of the Reits remain too small to support the widespread demand from UK investors.” Lowcock points to Drum Property Income Reit as an example, which invests in UK commercial property but holds just £37m.
He says because specialist property investors tend to have existing relationships with large asset managers joint partnerships might have more appeal than M&A deals.
See also: M&G property fund suspension looks set to drag on as unfrozen rivals hammered by outflows
Tritax wouldn’t have been as attractive if it was focused on open-ended funds
ASI was likely to drawn to Tritax for its specialist knowledge in logistics, says Lowcock.
“Whilst the closed ended products themselves wouldn’t drive the deal, an open-ended equivalent wouldn’t have been anywhere near as attractive,” he says.
Williams points out logistics is the one core property sector that has structural tailwinds for future growth. “Acquiring a specialist like Tritax is a shrewd move.”
Tritax is among a handful of real asset investments that have been scooped up over the last couple of years. Lowcock says the real assets space looks set to remain popular “for multiple reasons including fiscal stimulus”. “Expertise in this sector will no doubt make investment trusts specialists more attractive as they could well grow AUM.”
This month, Orix Corporation acquired a 70% stake in Gravis Capital Management, which runs the £780.2m GCP Student Living Reit, as well as the £1.1bn GCP Infrastructure Investments and £439m GCP Asset Backed Income investment trusts, alongside three open-ended funds with assets totalling £860.2m.
In June 2019, Foresight acquired John Laing Group’s remaining fund management activities, which were focused on the John Laing Environmental Assets Group trust, which currently has net assets of £516.2m.
While Glover says the investment trust structure is “clearly” suited to holding illiquid assets such as property, whether asset managers conduct more M&A in this space is down to their clients.
“The demands of the end investors and their advisers drive the behaviours of the asset managers,” Glover says. “If the retail market demands property in a fund with daily liquidity, an investment trust may be the only way to provide it. That means the adviser community will have to be more comfortable than many are at present with recommending an investment trust.”
See also: £5bn worth of UK property funds remain suspended despite clarity on valuations
