As of 2020, AXA Investment Managers Real Assets have roughly EUR5 billion of assets under management in Asia-Pacific. This represents around 5% of AXA IM’s overall real estate AUM, with the lion’s share of the global portfolio based in Europe.
In the interview Laurent discusses his investments to date in Japan and Australia and his ambition to significantly grow the business across the wider Asia-Pac region.
Hi Laurent. With Asia-Pacific growing in importance for AXA Investment Managers Real Assets, tell us a little bit about your assets under management here in the region. What numbers are we talking about in terms of the proportion of the overall AXA portfolio?
Hi Leo. Yes, today in Asia-Pacific, AXA IM Real Assets has roughly 5 billion Euros under management. It’s a small amount compared to the size of our AUM globally, which is around 100 billion Euros.
My objective is to grow this part of the world. We are very exposed to the European market and very strong in Europe, both on the equity and debt side, covering infrastructure and real estate.
Our ambition is to grow in the APAC region and hopefully, in the next five years, it might represent 15-20% of our total assets under management.
You invest in a range of mainstream assets, such as a residential and office. But you’re also looking at some alternative asset classes including hospitality, healthcare and student accommodation. Tell us why you’ve picked those asset classes.
Yes, that’s right. If you look at Australia, over the last two years we’ve been focusing on more alternative assets for two reasons. First, we felt that the mainstream assets such as office, residential, logistics and retail were pretty expensive or challenging. There is a lot of competition in these asset classes. We felt that in alternatives there is less competition. And what we like about our alternative assets is that they are less correlated to the economy and they are much more defensive. You can find good opportunities with long-term cashflow, which really fits our investment strategy.
Over the last two years, we bought some hotels to try to follow the trend in terms of an increase in tourism in Australia. We also invested in healthcare because we feel that the current government in Australia needs some support with some private funding to support the sector.
Also, we invested in student housing because we feel that Australia is very well placed in terms of education. When you look at the universities in Australia, they are improving in terms of global ranking. The quality of life is very good in Australia. It can attract a lot of people from around the region. A lot of Chinese students used to go to the U.S and UK. However, the U.S is very expensive and it’s not in the same region. It’s far away. It’s sometimes less safe when compared to Australia. And for all these reasons Chinese parents prefer to send their kids to Australia. It’s much closer (almost the same time zone) and most of the time it’s cheaper. We believe that the student accommodation sector should really benefit from these trends, especially as there is a lack of beds in for students in Australia.
Long-term, we are very confident that these asset classes should outperform. Of course, over the last six months, the performance has been a little bit challenged by the COVID situation, but medium to long-term, we are very confident about these asset classes.
Well, that was going to be my next question. Obviously, those sectors must be struggling a little bit with this current pandemic situation. But I guess as long-term investors, you’re thinking about the longer term trends rather than this short-term situation.
The performance of the hotels for 2020, and probably 2021, will definitely be below our expectations. But long-term I think that tourism in Australia is a very strong driver. We should also see a lot of demand for business hotels. I am very confident that long-term the hotel sector should do very well in Australia. The same goes for student housing. Healthcare is fine, of course, because of the COVID situation. The healthcare sector especially clinics and hospitals have not really been impacted. But all these asset classes over time should really perform well. As a long-term investors we are very confident.
And are there opportunities with lower pricings at the moment to make some acquisitions?
Yes, that’s a very good point. Of course, in this time of volatile market uncertainty, we feel that there will be opportunities for us, especially in the hotel space. A lot of operators, especially smaller operators who also own their hotels, will be suffering. To keep operating their businesses, they will have to sell their properties. So we have already come across a few opportunities in Japan where some small Japanese operators who are struggling. They run out of cash and the best way for them to get some cash is to sell their assets. That could be a trend that we’ll see globally, but we are starting to see it in Japan and we were introduced to a couple of opportunities in Australia as well. When there are uncertainties and volatility, it can generate opportunities. We are tracking this type of situation.
I notice you recently made an acquisition in Hiroshima. Why Hiroshima?
So why Hiroshima? When you ask tourists, “You’re visiting Japan, what is your plan?” People are usually first going to Tokyo, then to Kyoto and the third destination they tend to pick when they come to Japan and they spend 10 days or so, is Hiroshima. It’s a region which is well visited by tourists, but there is a lack of international standard hotels. You can find a lot of Japanese-style hotels with limited services, but not so many hotels that are really suited for international tourists. And that’s why we have invested in one hotel in Hiroshima, managed by an international brand. Room sizes are usually 10 to 12 square metres for a Japanese operator. When it’s an international operator, the room sizes are 16 to 20 square metres, which is closer to the standard you would find in Europe or in the U.S. We strongly believe there is a lack of this type of product in Japan.
And in Australia, which cities do you think offer the most opportunities at the moment?
Well, we’re still very focused on the East Coast, focusing on Sydney, Melbourne and Brisbane. We look at Canberra sometimes. One of the hotels we built was in Canberra, because again, there is a demand because of all the government departments in Canberra. More selectively we do look at some opportunities in Perth, but I would say our main focus is really on Sydney, Melbourne and Brisbane.
So far you have focused your investments on Australia and Japan. Any thoughts about expanding out into any other countries in the region?
Yes, of course, over the last three years we decided to really focus and consolidate our position in Australia and Japan. We consider these two markets as stable markets that are deep enough for us to find good investment opportunities. But going forward we are monitoring another couple of markets in the region. As I said the APAC region is a key focus for us, not only in terms of growing our assets under management, but also in terms of capital raising.
If I look at the investment part, we are monitoring markets such as South Korea. I feel that the South Korean market is becoming a lot more institutional. You can find some core long-term investments. I have been tracking the logistics market in South Korea and we have some well-advanced discussions with potential partners there.
At the same time we are also looking at China. As a global investor we feel that we can’t ignore China. It’s a massive market and when you look at the growth in China it’s pretty amazing. We are closely looking at China as a next step for investments. Of course, it’s not an easy market. You need to find the right strategy and the right partners, but it’s a fascinating market in my view.
Increasingly ESG is a key priority for investors. Where does ESG and sustainability sit within your criteria for making an acquisition?
ESG is a key part of our investment process. Each time we are investing in a building, we want to make sure that if the asset is not environmentally friendly enough, we can upgrade it. That’s a key part of our analysis and if we find out that it would be very complicated to upgrade an asset from an ESG point of view, this would be a reason why we would turn it down and not approve this asset.
We are not only focusing on the “E”, but with this alternative class, again, we’re also focusing on the “S” – on the social part. The impact of student housing from the social point of view is important. We need to find space for these students to live. Healthcare is the same. Investing in hospitals and investing in nursing homes is important from a social point of view. In residential, we are very active in the social housing space. So, for us ESG is very important both from an environmental point of view, as well as from a social point of view.
And looking forward for the rest of the year and into 2021. What are your key plans and goals for this year?
That’s a very good question. Of course, in terms of investment guidelines, we’ll slightly change our focus. As I said, we’ve been focusing on hotels for the last three years in the region. I think we’ll probably slow down a little bit and wait for opportunities. I think our main focus will be on residential. We recently closed two transactions in Nagoya, which is the city on which we have strong convictions. The demographics are still positive in Nagoya, which is not the case everywhere in Japan. The economy is pretty strong. By 2028 there will be a train coming from Tokyo to Nagoya, and it will take 40 minutes, whereas today it takes one hour and 40 minutes. It will be a huge improvement in terms of connectivity.
We’ll also keep investing in logistics because it’s an asset class that has benefitted from the situation today with increased E-commerce due to the lockdown. Logistics demand has definitely increased.
Another asset class we want to keep investing in is data centres. That’s one of the key asset classes that has benefited from the lockdown. The use of the internet and getting access to information has been very important. We saw that data centre operators needed more space. We have a significant exposure to data centres in Europe and we’ve been very successful. We want to replicate that in the Asia-Pacific region.
(Transcript has been edited for length and clarity)
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