M&G Investments is a highly innovative active asset manager investing €309bn* across fixed income, equity, real estate and multi-asset strategies across the UK, Europe and Asia. Our property investment arm, M&G Real Estate, is a real estate investment solutions provider managing assets across all major and alternative sectors. We manage about €37.4bn* of assets (including cash) across the UK, Europe and Asia making us one of the top 30 property fund managers globally (according to PFR/IREI 2019 rankings). Through our range of pooled funds, segregated mandates, investment partnerships and joint ventures, institutional investors have unrivalled access to compelling investment solutions in global real estate and real estate finance. We also 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 at scale for borrowers.
We help investors achieve better outcomes by accessing superior investment opportunities and actively managing each and every building to unlock value and to 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. This not only brings beneficial outcomes to our investors, but also to the environment and society.
*As at 30 June 2019
Strategic corporate devvelopment
M&G Real Estate continues to be focussed on the growth and diversification of its third party investor base.The business is targeting c. £3.8bn of third party capital over the next three years (2019–21). To achieve this the business has invested in the global sales platform and is driving through the development of new products, which should result in an increase of clients and assets under management. The continued growth of its two core flagship international strategies, the M&G European Property Fund (MEP) and the M&G Asia Property Fund plus the M&G UK Residential Property Fund that invests in the UK private rented sector is also key to meeting these targets.
The business is aiming to launch a number of new products in the alternatives space to provide investors with solutions that offer diversification and that have a low correlation to commercial property and other asset classes. Building on the track record the business has in the UK private rented sector space, we intend to launch an housing product that invests in shared ownership in the UK in the first quarter of 2020.
A European Living product and Hotels Strategy will also be launched in the first half of 2020. The business has been particularly focused on the growth of the European platform to support the growth of the M&G European Property Fund and will continue to allocate investment and asset management resource in Continental Europe to support the further growth of this vehicle. The business will also recruit additional fund and investment management resource to support the alternatives sector as new products are launched.
INDUSTRIAL: The industrial sector has now outperformed all other sectors for the sixth consecutive year, with 2019 set to see that winning streak extend to seven. Investment performance has been fuelled by the sector’s underlying strengths, the evolution of consumer behaviour and heightened investor interest. While market values have surprised on the upside, with yields having compressed 70bps over the last two years, arguably pricing has been playing catch up with the intrinsic value of modern logistics. With both e-commerce and city urbanisation rates still on the rise, we expect rents for well specified industrial stock in the right locations to see further uplifts.
OFFICE: Given the improved relative value of office yields over government bonds, the near-term potential for capital appreciation has improved. That said, the focus for office total returns over the long term is shifting towards income generation. The volume of new office supply is expected to rise to around 2% of stock over the next few years, but this follows a decade of underbuilding. European firms are generally still in expansion mode driving positive net absorption rates across office markets. With exceptionally low vacancy rates in Central Business Districts, we believe there is healthy upside potential for office rents and income growth in the majority of cities.
RESIDENTIAL: The outlook for the European residential remains highly attractive, given its potential for both diversification and income at this stage of the cycle. The housing market remains in a state of imbalance. As new generations increasingly opt to both live and work in larger towns and cities, the pressure on current supply levels continues to grow. New and affordable housing completions have gradually ticked up, but the strength of demand for modern apartments should easily absorb this. To encourage continued investment into the sector, new build developments have typically been exempt from rental regulation. As a result, we expect the new build private rental sector to outperform commercial real estate over the medium term.
RETAIL: The retail outlook across Europe, similar to other global markets, remains distinctly more mixed. 2019 has seen signs of pricing re-ratings, as shopping centre yields begin to drift due to concerns over rental prospects and exit values. Performance across high street shops is expected to polarise further, based on the quality of stock and fundamentals such as tourism flows and local market affluence. Rental performance has begun to reflect this, with rental declines in more peripheral retail markets such as Brussels and Utrecht, but continued growth in tourism driven cities such as Lisbon and Stockholm. A highly selective screening strategy remains essential, but we believe there are continued opportunities to acquire more defensive retail assets in tourist destinations or with strong food anchors.
Investment principles & strategy
Our investment decisions are informed by proprietary forecasts and market insight from an experienced global research team, while our sector specialists add value through active management and close relationships with occupiers. This deep experience and local knowledge of our investment markets and extensive asset management and development expertise help us to identify and exploit market inefficiencies quickly, giving our clients access to a broad range of investment opportunities.
Our objective is to deliver strong and sustainable risk-adjusted returns to our clients. We achieve this through:
- Adding value through property selection combined with proactive asset management, development and maximising rental income through effective leasing activities.
- Managing buildings to meet the changing needs of occupiers and higher sustainability requirements.
- Driving innovation and taking a client-focused, needs-based approach to originating new investment strategies and creative deal making.
We provide commercial mortgages from 0–80% loan-to-value on both development and income producing properties in Western Europe and are one of the few asset managers to provide whole loans at scale, which we hold to maturity for borrowers seeking higher leverage. Investing in real estate debt with M&G provides a number of competitive advantages:
- Extensive origination platform – our ability to originate loans directly ensures we can structure bespoke covenant packages and allows investors to share in upfront fees received from borrowers, providing attractive economics compared to purchasing loans in the secondary market.
- Ability to fund large transactions – we are one of few investors able to write large size tickets (up to £400m) for single or portfolio transactions, reducing execution/syndication risk for borrowers.
- Situational flexibility – capability to invest in various transactions, including refinancing, secondary purchases, primary acquisitions and loan-on-loan, are factors that underpin our success.
The services and products provided by M&G Investment Management Limited are available only to investors who come within the category of the Professional Client as defined in the Financial Conduct Authority’s Handbook. They are not available to individual investors, who should not rely on this communication. Information given in this document has been obtained from, or based upon, sources believed by us to be reliable and accurate although M&G does not accept liability for the accuracy of the contents. M&G does not offer investment advice or make recommendations regarding investments. Opinions are subject to change without notice.
M&G plc, a company incorporated in England and Wales, is the direct parent company of The Prudential Assurance Company. The Prudential Assurance Company is not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.