Head of Real Estate & Private Markets
Appointed in March, Joe Azelby leads the Real Estate & Private Markets (REPM) global investment platform with over USD 100bn in AuM, operating out of 14 countries, and with more than 550 employees worldwide (as of May 2019). Joe was previously CEO of JP Morgan's Global Real Assets business for 18 years and most recently, Senior Partner and Head of Real Assets at Apollo Global Management. Joe is also a former professional American football player for the Buffalo Bills.
Real assets are by nature a long-term investment. However, for the remainder of 2019, we believe that with favorable economic conditions and a low interest rate environment, investor demand for real assets will continue to strengthen. Here, Joe gives his views on the opportunities real assets provide to long-term investors.
There has been a rise of confidence in real assets over the last two decades – why is that?
The major driver behind the increasing popularity of real assets is low interest rates and in some countries negative interest rates. As interest rates fell during and after the Global Financial Crisis, investors began looking for other yield assets that could be substituted for bonds.
Real estate, infrastructure and other tangible operating assets with contractual cash flows have been pursued aggressively, as persistently low interest rates have taken hold. Asset managers recognized this trend and built out their real asset investment capabilities to satisfy this great demand.
With more investment managers participating and more products offered, we have seen the market mature over the last decade. Increased transparency, strategy segmenting, improved performance data and benchmarking along with better valuation processes, governance and reporting are all part of a growing and maturing asset class.
As institutions seek to diversify their portfolios, do you expect to see even greater exposure to alternatives?
Investors have been diversifying their portfolios into alternatives for the last two decades and we expect this to continue. Real assets have benefitted from the need to diversify as have private credit strategies and hedge funds. Within alternatives there are ebbs and flows as asset types become more or less popular based on prior performance or expectations of future performance. The overall trend to increase alternatives allocations has been helped by the trend towards low cost indexing and ETFs. By decreasing the cost of accessing traditional assets, investors have more ability to invest in higher fee alternative strategies offering some combination of diversification and return enhancement.
Which regions do you expect to boost the most returns in the next 20 years?
Real asset investing requires a local market focus vs. a regional or global focus. Real assets compete in a very local market and the investments you make must compete successfully in their immediate neighborhood. The game is won and lost through thoughtful asset selection, intensive asset management and selling to the best buyer at a very opportune time. Areas of interest include residential and office assets in Europe and industrial assets in the US. With the retail sector in both the US and Europe under significant pressure, we will look to take advantage of falling asset prices on a highly selective basis. Global macro forces impacting regional economies or country currencies can swamp the good work being done on the ground especially in emerging markets. However, proper asset selection, a good business plan for the asset and stellar execution will most often result in a profitable ending.
What are the main challenges you think will impact the industry in the coming years?
Economic cycles and interest rate changes in response to them are important but beyond our control. Our focus is on the assets we own and the forces around them that are likely to make them more or less valuable. Is the new office tower being built next to ours going to help or hurt our asset's position in the marketplace? If its Google's new headquarters it may help our building by attracting related tech tenants to the neighborhood. If it is a speculative office tower development we run the risk of losing tenants to our shiny new neighbor.
If our infrastructure team is buying a regulated utility providing power to a state, we need to understand the regulatory regime of that state and discern whether it is likely to change for the better, worse, or stay the same. Real assets are impacted more by local competition and other resident forces than the big macro trends and trades.
What have you learnt most from playing professional football? Do you apply any of these principles in your work today?
Both you and your team need to improve constantly if you want to win consistently. Football and the asset management industry are both highly competitive, full contact and played in an ever-changing environment. Both require you to recognize when things are changing and adjust quickly and appropriately while running at full speed. If you are not improving you will fall behind, because you must assume everyone else is changing for the better.