Nothing says business like a dramatic, black-and-white short film. A slick edit, high production values and wide, sweeping shots of perfectly tailored men and women striding purposefully along corridors, laptops underarm.
But this is not a trailer for the next Hollywood blockbuster, nor even a teaser for a tense new BBC drama. This is a film made solely to capture the start of a new working week at one of the world’s largest private equity property investors.
As the rousing music reaches its crescendo and the film cuts to boardrooms around the world, it would be all too easy to dismiss this promotional video for Blackstone’s famous Monday meetings – where over 100 business representatives from across the globe discuss their deals and assess risk – as over the top.
In such uncertain, volatile times many, including Blackstone, would argue that company-wide communication of global threats is a crucial part of running a successful business. But is there a danger of getting caught up with a hefty information overload? Is the seemingly exponential rise in risk as serious in reality as it is perceived, or a result of 24-hour news coverage and a constant flow of social media?
Global fund strategies
An increased likelihood for all global risks was recorded by The World Economic Forum at the start of 2016. Failure of climate change mitigation, large-scale involuntary migration and cyber attacks were among the top risks identified in the report More Walls, More Warming, Less Water. That was published before the Brexit vote wreaked pervasive uncertainty across the Continent.
Blackstone believes its Monday meetings are just one way to stay nimble in an uncertain world.
“In many ways, Mondays at Blackstone drive the firm’s success,” Joan Solotar, senior managing director and head of the external relations and strategy group, says into the camera. “Every week members of each business gather to talk about potential investments, current investments, and what we’re hearing and seeing around the world.”
It might sound oxymoronic, but for the world’s largest private equity property investor – with more than $100bn (£76.5bn) of capital under management – uncertainty need not get in the way of opportunity. That is, if you know what is going to happen just before it hits you in the face. “It’s knowing what’s going to happen before it happens, by taking insights from one of our business areas and applying them across the board,” says Blackstone chairman, chief executive and co-founder Stephen Schwarzman.
At fellow global real estate investor Hines, the company’s senior managing directors tune in to a weekly conference call where a research expert gives an update on recent global events which could affect investments. It could be a speech delivered by Bank of England governor Mark Carney, or a discussion of political changes somewhere around the globe.
“Osmosis is probably the best way to describe how we make sure everybody knows what they need to know, just by everybody talking and a weekly rant email.” – Richard Croft, chief executive, M7 Real Estate
Ross Blair, senior managing director and country head of Hines UK, says he knows if he pitches an acquisition to the investment committee the week after they have heard a speech from the Bank of England, he should expect to be quizzed on whether he has taken into account, for example, potential changes to interest rates.
M7 Real Estate chief executive Richard Croft takes a more informal approach, sending a “weekly rant email” with all the things he’s thinking about to his senior staff.
“Do we have policy meetings? No,” he says.
“We don’t do that, because none of us are in the same country at any one particular point. Osmosis is probably the best way to describe how we make sure everybody knows what they need to know, just by everybody talking and a weekly rant email.”
Croft is also “absolutely obsessed” by data. M7 has developed its own software which gathers data on all of the pan-European fund’s £2.3bn of assets under management, which makes up more than 500 buildings and 4,000 tenants.
“The amount of data we generate is huge,” Croft says. “All our systems give us great information management control. So you manage risk by having access to data all the time. Knowing and having live data means knowing if the position of any of the assets in our portfolio is problematic. I know a lot very quickly.”
Information overload?
But Croft adds that with more information comes more concern. And this can create a sense of growing global risk which, he believes, is not necessarily always accurate: “One of the reasons we have so much uncertainty is because we have 24-hour news,” he says. “So there is nothing that you don’t know about that’s happened somewhere in the world in the last half an hour; if it’s a major event.”
He adds: “I take some issue with the idea that there is more global risk. It’s just we perceive it because we know so much more.”
Orchard Street Investment Management partner John Humberstone takes a measured approach to the never-ending information flow.
“You have to be aware of what’s going on,” he says. “But I think you need to caution against paralysis, not to look through the pessimistic lens all day every day.
“We have got a few reasons to be cheerful in the property sector. Where else can you get an asset-backed yield of 5%?
“And the UK is seriously attractive because it is a mature economy, and it has a great rule of law.”
A key source of information that drives Orchard Street’s risk analysis is its more than 900-strong tenant base across a £5bn portfolio, which is speaking to its asset management team on a regular basis.
“You’ve got to try to work out the impact that current and future events are having on people. And I think staying close to your tenant base is absolutely key.” – John Humberstone, Orchard Street Investment Management
“There’s not much point in operating through the rear-view mirror,” Humberstone says. “You’ve got to try to work out the impact that current and future events are having on people. And I think staying close to your tenant base is absolutely key.”
Regardless of how uncertainty is generated, John Forrester, EMEA chief executive at Cushman & Wakefield, says “day-to-day uncertainty” has now replaced occasional threats.
Forrester adds he used to have to send emails alerting people to the security of a global office once every 18 months. Now those e-mails are sent out every other day.
“Historically, if a bomb went off in a city, you spent the first several hours finding out if everyone was safe,” he says. “Now responses are far quicker.” However, he thinks the UK’s experience of IRA bombings and the 7/7 terror attacks in London have made the country relatively well prepared in event management. C&W also has its own internal messaging system with sub-groups so he can tune in to the latest information on any sub-market or city at any time. Constant data flow and information exchange are vital for dealing with risk, he says.
The age of data
The industry’s awareness of its own shortfalls in the face of rising uncertainty has been a boon to the “Big Four” management consulting firms. The consulting arms of EY, Deloitte, PwC and KPMG collectively grew by 11.5% to £2.6bn in 2015. Risk and regulatory consulting grew the fastest, and is now worth £507m in the UK.
PwC global real estate leader Craig Hughes says he thinks its clients recognise the value of being able to access the company’s experts in areas ranging from transport infrastructure to the economy.
The reality is that there is never going to be a one-stop shop for global risk management.
TH Real Estate, which has around $96.3bn (£73.3bn) of property assets under management across 50 funds, uses both its own global research team and independent advisers. Ray Adderley, chief investment officer, performance measurement, says the investment management company uses a “top-down analysis” to identify the geography and cycle timing of prospective property investments. This is complemented with a “bottom-up analysis” dealing with individual sectors, sub-markets and specific properties.
Asset managers are increasingly relying on their own data collection and management in tandem with specialist advice.
Property has traditionally prioritised personality over numeracy. In an increasingly uncertain world, data and algorithms are the new must-haves for maintaining a competitive edge.
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