ASIA NEWS: Future funding

Australia’s A$68 billion sovereign wealth fund has increased its exposure to real estate over the last year. But will commingled fund managers benefit? PERE Magazine June 2010 issue.

Blind pool, commingled fund managers eyeing last month’s news that Australian sovereign wealth fund, Future Fund, had increased its allocation to real estate to 4 percent from 1 percent in a single year might well have had mixed feelings on the matter.

The increase, part of a wider increase in exposure to alternative assets at the expense of some of the A$67.6 billion (€46.3 billion; $61.6 billion) state fund’s debt securities and listed equities allocation, was revealed in the fund’s first quarter performance update. It means A$2.58 billion was allocated to real estate as of 31 March, 2010, up from just A$529 million at the same time in 2009.

However, while it has increased its real estate activities, Future Fund’s actions over the last year might suggest it is looking to take controlling positions in its investments, rather than rely blindly on third party managers. Participation in Brookfield Asset Management’s $5.5 billion Brookfield Real Estate Turnaround Consortium, the giant “club structure” investment vehicle launched last August in which investors have voting rights on investments sourced, was followed one month later by a direct 33 percent stake in the £200 million (€233 million; $288 million) Bullring shopping centre in Birmingham, England.

But according to one private equity real estate firm familiar with Future Fund, the sovereign wealth fund is unlikely to follow in the footsteps of some of the world’s other large investors, such as the Abu Dhabi Investment Authority and Qatar Investment Authority, in not seeking to make new commitments to blind pool funds, or by growing its own investment team. But he suggested Future Fund’s real estate team, a trio of executives including head Barry Brakey, are currently most focused on domestic investments.

“They are opportune-led,” he said. “They have the capacity, the intelligence and the approval systems in place to make global investments, but I think at the moment they are focused on Australia.” Indeed, Future Fund’s tie-up with property company Lend Lease to buy ING‘s Australia-focused unlisted ING Retail Property fund for A$1.4 billion would lay foundation to that claim.

Barry Brakey: ‘Bell Tower’ of Australian real estate

Future Fund appointed Barry Brakey as investment director, private markets to lead its real estate investment activity in February 2008, having led Australian property consultancy firm Pinnacle Property Group, which he founded, for more than 20 years. According to one report at the time of his appointment, he described the opportunity as a “once in a life-time opportunity”.

Labelled a “bell tower” for the sector by one private equity real estate fund manager, Brakey is regarded by his peers as something of an “opinion leader”.  The fund manager added: “He is a very calm and disciplined operator and is very rigorous in his selection of partners and properties.”