Ed Casal showed impeccable timing when he merged his $110 million Madison Harbor Capital into Aviva Investors, the $470 billion global asset management unit of London-based life insurance company Aviva plc.
As chief investment officer of the Global Real Estate Multi-Manager Group of Aviva Investors, which operates its U.S. headquarters in Des Moines, Casal is overseeing the investment of some $7 billion in real estate private equity funds. The investment is primarily in Europe, the U.S. and Asia, just as asset prices are tanking.
That’s particularly true in the secondary market, where private equity limited partners are looking to unload positions at discounts generally approaching 50%, up from 10% a year ago.
Over the last 12 months, Aviva’s multi-manager group has acquired some $260 million in secondary interests, says Casal, 51. He declined to identify particular purchases, but Casal anticipates that his team will pursue apartments and downtown office buildings in the U.S. as pricing becomes attractive.
Sellers are still reluctant to accept big discounts, which in turn has stymied transaction activity. Yet Casal predicts that limited partners will have little choice but to accept the offers in the near future.
“A seller told us that a 20% discount wouldn’t bother him, but he just couldn’t do a 50% or 60% discount,” explains Casal, who launched Madison Harbor, a fund-of-fund, in 2003. But once private equity managers are forced to mark their assets to market over the next few quarters, a 60% discount today will merely look like a 20% discount then, he adds.
Casal timed his merger well for another reason. Smaller funds face tougher competition from larger firms in a downturn, he acknowledges. Aviva is the largest insurer in the U.K. and the fifth largest in the world. Moreover, its asset management unit manages some $50 billion in real estate assets globally.
“Whether you invest $10 million or $110 million, all of the work is the same. We wouldn’t have spent one day more or one day less on our analysis,” says Casal, referring to his Madison Harbor days. “By merging with Aviva, we now have the breadth, scale and longevity of resources that will allow us to be even better at managing the business.”