M&G Investments is an innovative active asset manager investing €317bn across fixed income, equity, real estate and multi-asset strategies across the UK, Europe and Asia. M&G Real Estate is a real estate investment solutions provider managing assets across all major and alternative sectors. We manage €39.7bn of assets, making us one of the top 30 property fund managers globally (according to PFR/IREI 2020 rankings). We employ over 300 people spread across 12 offices globally.
Through our range of pooled funds, segregated mandates, investment partnerships and joint ventures, investors have unrivalled access to compelling investment solutions in global real estate and real estate finance. We offer senior and mezzanine debt across the UK and continental Europe, either on a standalone or combined basis, making us one of the few asset managers to offer a directly originated, ‘one-stop’ solution for borrowers.
We help investors achieve better outcomes by accessing superior investment opportunities and actively managing every building to unlock value and deliver strong risk-adjusted returns. Through our activities, we can also make a positive impact on society. To this end, our responsible property investment team plays a fundamental role in ensuring we use our resources to enrich the lives of people and communities by creating world-class places to live, work and play. In 2020, we achieved ‘Green Star’ status for 10 funds in the Global Real Estate Sustainability Benchmark survey. We are committed to achieving net carbon zero across all our real estate assets by 2050.
Strategic corporate development
Our real estate strategy over the near term is aligned to our overall corporate strategy which is to provide active high-value investment solutions to our clients, in more markets and through a wider range of structures. Key pillars in the growth strategy:
- Customers: building our business around them and using our experience and insights to meet their needs;
- Distribution: expanding the range of propositions and the channels through which we deliver them;
- Investments: producing good outcomes for customers through our expertise and innovation;
- Merger and transformation: creating a simple, digitally enabled business with lower costs focused on customers.
M&G Real Estate is well-positioned for growth, being one of the most international of UK-based real estate investment managers. We seek to grow our assets under management in a profitable and sustainable manner by offering a focused range of globally scalable funds and strategies to meet the investment requirements of our clients and attract new sources of institutional capital to the business. We will shortly be launching a European Living fund and a Shared Ownership fund to provide investors with more options in the alternative space with a low correlation to both commercial real estate and other asset classes.
INDUSTRIAL: A defensive occupier base during the pandemic and e-commerce-related demand continue to support both rental growth prospects and investors’ appetite for logistics space. This trend is global in nature. While supply is starting to come through in some parts of the market, oversupply is still not a concern, allowing us to remain positive around the outlook for rental growth. Attractive fundamentals combined with ongoing uncertainty around the other mainstream sectors continues to focus investors’ appetite on the industrial sector. As a result, increasing competition is putting pressure on investment pricing. The sector is becoming increasingly expensive, particularly on a relative basis, competing with London offices, supermarkets and some residential assets. We advocate holding onto better-quality industrial assets which, even if expensive, will offer some protection going forward. Meanwhile, consider profit- taking on industrials with risk in today’s sellers’ market.
OFFICE: The office sector is expected to see a cyclical recovery, albeit potentially tempered by structural trends. Leasing activity has started to pick up following the removal of COVID-19 restrictions, albeit selectively. Some businesses remain very vocal around employees returning to pre-pandemic working patterns, while others are pledging to move to a more flexible/hybrid routine. Whilst it is still too early to determine the impact of this on the office sector, an on-going undersupply of modern, flexible, amenity-rich office space with strong ESG credentials in well-located locations is supporting the rental outlook for prime offices. In the short term, a K-shaped recovery implies that poorer-quality office stock will suffer. However, well-located offices which do not currently meet future occupiers’ needs but can be repositioned and released provide attractive value-add opportunities.
RESIDENTIAL: The living sector has been a major focus of investor demand during the pandemic, reflecting its defensive credentials. We expect this to continue as investors look to invest in property types that align with long-term structural trends. Demand for Build to Rent is expected to strengthen further, with an increased focus on less established areas like suburban single-family housing and smaller urban centres. Similarly, investor sentiment continues to grow in the affordable housing sector due to the potential for long-term inflation-linked income and capital appreciation. Meanwhile, despite having suffered in occupational terms during the pandemic, student housing assets are likely to remain in significant demand, although growing polarisation in occupier demand by quality of institution is expected to lead to a softening in yields for more secondary locations. Senior living is also now emerging as a significant opportunity, given favourable demographic trends and structural under supply, suggesting the potential for out performance for early movers in this space.
RETAIL: Having struggled due to a combination of structural and cyclical factors, the more positive outlook for the economy is expected to support a bounce back in ‘bricks and mortar’ retailing. With ‘Freedom Day’ allowing shopping, leisure and hospitality to reopen in full, demand is rebounding sharply. As a result, the retail sector has started to offer a degree of opportunity. We see relative value and attractive yields being offered by better-quality, more prime retail warehouses and supermarkets in particular but also by retail overall. Improving performance is being underpinned by a change in sentiment towards the sector, responding to the economic recovery. Sector liquidity is improving and competition for prime stock has picked up. There are also mis- pricing opportunities to be found in the current market. However, whilst rents have rebased in the retail warehouse and supermarket sub-sectors, we expect rental growth prospects to remain subdued in the near term.
Investment principles & strategy
Our investment philosophy and approach is built around the needs of long- term, income focused capital and is shaped by decades of experience managing the assets of insurance companies and pension funds which make up 89% of our AUM. Investment decisions are informed by proprietary forecasts and market insight from an experienced global research team.
We believe that:
- Income is the primary driver of long-term returns. We target and proactively manage assets which can generate sustainable, growing income streams.
- A balanced portfolio diversified by geography and asset type enhances risk adjusted returns over the long term.
- Real estate markets are inefficient. Using proprietary research and financial models we identify and exploit mispricing at asset class, real estate sector and individual asset levels.
We aim to provide commercial real estate mortgages to borrowers secured against a range of different investments, including income producing, transitional and development assets.
Moreover, we are strongly focused on self-originating debt that allows us to achieve attractive risk-adjusted through:
- Origination – direct origination of loans to maximise negotiating power .
- One-stop-shop – reduce execution risk. Provide senior and junior debt in a single whole loan solution.
- Hold-to-maturity – a buy-and-hold investor.
- Funding large transactions – average ticket of £100m+.