How Abu Dhabi’s SWF picks partners for real estate
The Abu Dhabi Investment Authority (Adia) has historically put a lot of emphasis on its partnerships when investing in real estate and there is no sign of that changing under the sovereign wealth fund's new property chief.
As the world’s third-largest SWF with an estimated $828 billion in assets under management, according to the Sovereign Wealth Fund Institute, it has to be in it for the long run.
So having the right partners at ground level is all the more crucial, explains Tom Arnold, who took over from Bill Schwab on June 1 as the Adia's global head of real estate, having previously been his deputy.
"We approach real estate investing from a relationship, and not from a transactional, standpoint,” he told AsianInvestor in an interview.
While Adia does not disclose details of how much of the oil-rich emirate's reserves it has invested in property, it is the number one real estate investor globally, by Credit Agricole’s Indosuez Wealth Management's reported reckoning, with about $62.1 billion in real estate assets.
The SWF’s real estate investments are mainly executed through a collaborative approach that includes joint ventures with experienced local partners as well as third-party fund managers, whose performance is monitored by Adia’s growing in-house team.
Starting out with around 40-odd employees in 2009, when most of its investments were externally managed, it now boasts more than 200 professionals. All are based in Abu Dhabi, part of the United Arab Emirates, although at any point in time at least 25% of them are on the ground in markets around the world, Arnold said.
"Each of our regional teams also has professionals from those markets, which brings an extra dimension of cultural sensitivity and local knowledge to our decision making. This approach is a central part of the strategy," he added. "It has allowed us to build a strong and collaborative culture, while ensuring we remain connected to the markets where we invest."
BROADER SYMBIOSIS
That collaborative culture dovetails with Adia's synergic approach to real estate investment because in the search for suitable partnerships, Arnold said Adia first and foremost looks for entities that it can develop long-term relationships with.
"Where possible, we also try to invest in areas that are aligned with the government priorities of different countries. For example, we are a major investor in logistics in China and are looking at opportunities in India as well, as a way to support the political objective of improving the supply chain from rural areas to major urban centres," he said.
Overall, the SWF looks for opportunities that are supported by capital flows, the growing sophistication in [real estate] markets, demographics and an emerging consumer class, Arnold said.
"One approach we have used successfully in certain markets, particularly [in] Asia and India, is to establish platforms that can be managed by partners with expertise in specific sectors and opportunities, especially logistics and residential," he added.
In that vein, Adia teamed up in January this year with India’s Housing Development Finance Corporation to establish a $1 billion-plus joint investment platform for affordable and middle-income housing projects across the country.
"We are now less an investor in funds and more a direct investor in property, using an approach that we call 'global relative value,' which essentially means that all opportunities globally are weighed against each other from a risk-return perspective," Arnold said.
"But accessing the broadest range of opportunities requires us to build a strong network of partnerships."
Arnold declined to state how many real estate partnerships the SWF has around the world.
TWO-WAY STREET
Any partner chosen by Adia – and the SWF participates in projects in markets from Chile to China – needs to have a similar view of the opportunity set available in a country or sector.
The SWF seeks out partner entities that boast experienced professionals with deep local expertise and acumen. "In return, we bring not just capital but a global perspective and international relationships," he said.
"In some cases, we have helped our partners expand internationally by sharing our experiences in the markets they are targeting and by introducing them to some of our other partners."
A good partnership, Arnold noted, is one in which both sides have positive influences on each other and contribute to improving each other’s systems and processes as well as professional skills.
But there are also times when relationships, however well-meaning, don’t work out.
"...there have been some cases where we have amicably parted ways. This can happen when our interests are no longer aligned or where the team has fundamentally changed," he said.
"It’s fair to say that we are selective. Choosing partners isn’t a quick process. It’s important to find a sweet spot here – you can’t have too many partnerships because then it becomes difficult to invest sufficiently and have quick responses."
However, the number of partners can't be so few that they feel uncomfortable when they need to delve into unfamiliar markets or territories, he added.