TIAA announced in early February that it has created a global real assets division, naming Jose Minaya as president and Heather Davis as chief investment officer. The new business aims to better align affiliates, business teams and strategy in support of the division’s continued growth. As of Dec. 31st, TIAA managed approximately $100 billion in real assets, including $91 billion in real estate globally. NREI recently talked with Chris McGibbon, managing director and global real estate portfolio manager at the firm, to hear more about the drivers behind this latest change and what’s ahead for the firm’s new real assets division.
NREI: What motivated TIAA-CREF to create a global real estate assets division?
Chris McGibbon: We had a lot of momentum in the real asset space based on our strong position in various alternative strategies. We decided to create a separate unit to build upon that strong position. Our goal is to become a leading global alternative asset manager, and so we structured it as this stand-alone real assets business so that we could take advantage of the full breadth of our expertise.
Also, tying the client experience together across geographies and investment needs was an important factor. Each one of these sleeves was operating fairly independently, such as agriculture, timber and real estate, with their own independent base of clients. We needed to connect the dots from a client experience perspective. So this stand-alone business is really to capture that and give clients access to a full menu, with consistent quality and consistent execution across alternative investment asset classes.
NREI: So what does that full menu include?
Chris McGibbon: Included in the real assets business is all of our real estate, agriculture, infrastructure, timber and energy, as well as our real asset focused subsidiaries. So we have TH Real Estate, which is our European and Asian real estate platform; the Westchester Group, which is our agriculture asset manager; and Greenwood Resources, which is our timber manager and Churchill Asset Management. The new real assets business operates as a stand-alone business unit within our overall TIAA asset management business. I think by carving it out this way, the unit will really be able to further leverage these capabilities by aligning the teams and strategies in concert to support our growth.
NREI: You mentioned the momentum that had driven this. Can you quantify that in terms of how much your portfolio has grown?
Chris McGibbon: In the last 20 years, real estate has probably quadrupled in size and there probably has been similar growth across the rest of the real asset space. So we have seen significant growth. But more than that, what we heard from investors is that when their teams talk to us in real estate, they might have that same group talking to us about agriculture or infrastructure. Having the ability to talk to them about all of these offerings at once is more efficient and desired by investors because there is a real movement to deal with fewer managers. Being that one-stop solution for two or three or four strategies globally, and across the entire spectrum of alterative asset classes, is a really good way to improve the investor experience.
NREI: Can you share any of the company’s growth goals going forward in terms of investment portfolio size or total real estate assets under management?
Chris McGibbon: While we aren’t disclosing any specific targets, the purpose of this is, first and foremost, to give our investors a really high quality experience. I think by investing heavily in each of these sleeves and the overall business, growth is going to come.
NREI: Do you have any other strategies for achieving that growth? Is it going to be organic, or are you going to look at acquisitions or other ventures?
Chris McGibbon: All of the above. We really like the franchises that we have. In the real estate space, for example, in North America we have a very strong core franchise, and in Europe we have a strong franchise in TH Real Estate. Asia is one place where we could look to expand inorganically. Part of the reason that Jose (Minaya) was such a natural leader for the real assets platform is his ability to acquire the right entities and teams and set up these boutiques to operate independently and grow.
I foresee more of this as we move out on the spectrum of alternative asset classes, as well as really focusing on improving our franchise organically. We have over 40 strategies now in Europe alone just in the real estate space. Several of those strategies are open for investment, and it is the same in the United States. There is a deep product pipeline. So it will be heavily focused on organic growth, but we will also look at inorganic options anywhere we might have an interest, such as moving out on the risk spectrum for value-add or opportunistic real estate investing.
NREI: This division is aimed at growing your fee-based asset management business specifically. Correct?
Chris McGibbon: Exactly. It is the third party space. We have a couple of internal clients, but we have hundreds of external clients. So the focus in the future will be driving solutions that are attractive to global, fee-based investors.
NREI: Met Life also came out with a statement recently about being more focused on growing its asset management operations. Is there a broader industry trend to expand asset management and generate more fee income from those services?
Chris McGibbon: With the consolidation of teams within the investor universe it is definitely an industry trend. A lot of firms have clearly been focused on it as well. We should be in a pretty unique spot in that we started early and have already built expertise in a half dozen of these sleeves of alternative asset classes. So I think we are uniquely positioned, but it is clearly a trend among other firms as recent headlines would suggest.
NREI: So to summarize, how do you think this new division better positions TIAA-CREF for future growth?
Chris McGibbon: This will allow us to more effectively develop all aspects of the business so that we can really leverage our distinct expertise in the space. It’s really about the investor experience for us. We have grown beyond our retirement base to include sovereign wealth funds, pension funds, insurance company clients. I think by setting up as a stand-alone real assets business, it’s really going to help us be more nimble so that we can accelerate our speed to market. One of our priorities is streamlining processes and being efficient while retaining the specific investment expertise in each area.
If an investor comes to the real estate sleeve for real estate product, they are dealing with real estate experts with a micro focus on particular markets or particular sectors. The overarching real assets umbrella is there to make sure that there’s common quality and execution around that.
NREI: Is there anything else that you would like to add?
Chris McGibbon: Clearly with bond yields being so low and stock market volatility, I think we are continuing to see interest coming into the real estate space. So, in general, there is real excitement about what this could become. We are already seeing quick wins where we are tying clients from one sleeve, like agriculture into real estate or timber, or even from our North American real estate business into our global real estate business, which previously was not as connected. There is a real alignment, and I think it is exciting for clients to be part of that.