Corporate overview
Headquartered in London, M&G Investments is the investment management arm of M&G plc, the London-listed international savings and investment business. M&G Investments is a leading global asset manager with a long history of investing and innovating across both public and private markets managing $386bn of assets (as at June 2023) across fixed income, equity, real estate and multi-asset strategies.
M&G Real Estate is the property investment and asset management arm of M&G Investments and manages circa $50bn (as at June 2023) of capital dedicated to real estate equity and debt strategies globally. We employ circa 300 people across 12 offices globally, who are responsible for managing circa 800 properties in circa 20 countries. We manage some of the largest open-ended diversified core equity (ODCE) real estate investment funds in the UK, Europe and Asia and the majority of our funds are in the top decile of the Global Real Estate Sustainability Benchmark (GRESB) 2023 rankings compared to their respective peer groups. Our long-established real estate debt platform has deployed over $15bn across the capital structure in the UK and continental Europe since 2008 by offering directly originated and a ‘one-stop shop’ real estate debt solution for borrowers.
Strategic corporate development
M&G Real Estate has built its reputation on market leading, core, open-ended, diversified funds in the UK, Europe and Asia. We have strong local teams across each region which originate and manage direct investments for our clients. In the UK we have multiple well-established funds focusing on both long-income real estate investments as well as residential property in all its forms. In the last 10 years we have also extended these skills to Continental Europe and we are looking to establish a similar residential franchise in Asia Pacific.
Similarly, we are also looking to expand our well-established European real estate debt franchise (15 dedicated real estate debt specialists) to other regions.
Our growth to date has been achieved by the strong alignment of significant internal client capital in all our investment vehicles. We advise, and execute investments on behalf of our clients, based on the conviction of our local investment teams and well-resourced real estate research teams in those areas of the market where we have a competitive advantage and where there is a market opportunity to build a new franchise. We then invite third-party institutional investors to join us to scale up our ambitions, either as joint venture partners, co-investors or cornerstone investors in our funds.
Sector forecasts
INDUSTRIAL: Logistics occupier markets have softened over 2023, with a retrenchment in demand back to a level more in line with pre-pandemic averages. This cyclical slowdown in demand – driven by a weakening economic outlook and a slowdown in consumer demand – has been paired with an elevated volume of new supply completing. While this has pushed up vacancy, supply levels remain constrained in a historic context and forward-looking new construction activity has slowed significantly due to elevated build and debt costs. Moreover, the sector remains well-positioned in the longer term, with demand – particularly for new space – set to be supported by the structural shift to e-commerce as well as the continued occupier focus on supply chain optimisation. These dynamics are set to underpin rental growth prospects and drive continued investor interest in the sector.
OFFICE: European office markets are currently suffering under the weight of structural and cyclical challenges which have led to a weak occupier demand picture in 2023. Within this context, occupiers have continued to recalibrate their requirements, increasingly focusing on high-quality and sustainable space, driving bifurcation in asset performance. The supply of prime space has remained relatively tight, with rental growth prospects and investor demand stronger in this segment of the market. Conversely, the recent rise in overall vacancy levels has been particularly acute in terms of secondary supply, often released as occupiers have downsized into higher quality space. The concurrent risk of obsolescence for non-ESG compliant secondary assets is also elevated due to the costs involved in retrofitting these buildings and the limited access to finance for office landlords at present.
RESIDENTIAL: The defensive characteristics of the living sector will continue to shine through in 2024, although growth in the sector will likely be constrained given higher interest rates and persistent cost of living pressures. Buyer demand in the housing market is likely to remain sluggish given higher mortgage payments, despite some modest price corrections to date, and this will strengthen tenant demand in the private rental sector. Low existing vacancies will be exacerbated by an undersupply of new build schemes – and we will see ongoing rental growth across most European cities. Similar pressures echo through to the other sectors underneath the living umbrella, particularly purpose-built student accommodation (PBSA) and these will support investor interest in the short to medium term.
RETAIL: While inflation has dropped from its double-digit peak, it remains above target and will continue to negatively impact consumer sentiment and the wider retail sector. Supermarkets and grocery anchored assets with RPI-linked leases, as well as prime retail warehouses, will remain resilient and offer investors a degree of protection and a route to better returns in the high-inflationary environment. High-street retailers will continue to navigate wider structural challenges, although those which are offering the customer a new experience are best positioned to succeed. The sector may experience some limited further repricing over the coming 12 months, but given their initial starting point, the falls in value are unlikely to be as sharp as other commercial sectors.
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 over 90% 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 returns 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+.
COMPLIANCE STATEMENT
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.
