Coronavirus will certainly add risk to investing in real assets, says the chief of Europe’s largest real estate asset manager.
Isabellle Scemama, CEO of AXA Investment Managers - Real Assets, said the sheer quantity of institutional and high net worth capital targeting the asset class - ‘trillions’ potentially in the coming years - had already elevated risk by raising asset prices and compressing returns.
‘We have to adapt and adjust to the level of risk in the market. It was becoming challenging before this crisis occurred, and is more so now, due to what we have seen in the last two to three weeks’, she told PropertyEU late last week.
Scemama was speaking two days after the 10 March when AXA IM announced that it was expanding the Real Assets business, which has €87 bn of direct real estate, property debt and infrastructure assets under management, to €137 bn AUM. This will happen by merging real assets with structured debt and hedge funds and re-branding this alternative investments business under Scemama as AXA IM Alts.
The intention is to streamline the European investment management giant’s distribution processes so that it can access and advise clients more efficiently.
While the move is about capturing growth, Scemama stressed it is also about managing investment risk well. She indicated that although AXA IM Real Assets could raise €20bn-€30 bn of capital a year she did not expect to do so.
Last year, AXA IM Real Assets raised €8.6 bn of new capital and completed €13.7 bn of transactions. ‘I would not expect to increase by more than 10% a year’, she said, ‘because we want to stick to the kind of deals we did last year...It is to be sure that the capital we raise we invest smartly.’
The business recognises that the logistics of investing are already becoming much more difficult because of the coronavirus crisis.
‘In territories such as Italy where it is currently impossible to organise a site visit we have put some sales processes on hold, or slowed some down, just because it is impossible to deal technically with the process,’ Scemama said.
She added that AXA IM Real Assets had not pulled out of any deals. The business would continue to review opportunities and in the coming period, ‘we may need time just to technically organise the due diligence,’ she continued.
‘We may also need time, of course, to re-assess the level of risk depending on the volatility and how our macro view evolves.’
AXA IM Real Assets will continue with an investment strategy of further diversification into defensive real estate such as logistics, residential and alternative asset classes including senior living and student housing.
The team will also continue its focus on the most liquid markets. ‘We have always refused to go for the extra yield by going too far on the locations. We have not been in eastern Europe and we have not been in smaller towns for the extra yield.’