The TIAA organisation has been busy repositioning itself of late. The venerable TIAA-CREF became plain TIAA in February this year, followed in short order by the rebranding of TIAA Asset Management as TGAM (TIAA Global Asset Management).
TIAA has been on an expansion path in recent years. The 2014 acquisition of Nuveen Investments, the Chicago-based multi-affiliate manager, brought scale and distribution reach to the TIAA group, along with affiliates like the commodities manager Gresham.
A recent addition to TGAM’s affiliate manager network included a team lift-out from Carlyle in April 2015 to create the US mid-market senior loan specialist Churchill Asset Management, in which TIAA has a majority holding. Rob Leary, TGAM CEO, reports a surprising amount of interest in Churchill’s offering from investors around the world.
“Three or four years ago, the thought that a team from Carlyle would show up at TIAA and say we want to become part of your machine, I think, would have been unheard of,” says Leary. “Now we are seeing that on a regular basis.”
But these acquisitions inevitably raise questions about the coherence of such a large and potentially unwieldy asset management group and how it presents itself to the wider world. “Part of what we are doing is educating people on why we formed TGAM, so people would begin to see the whole picture,” says Leary. “In the past, people were seeing us as TIAA-CREF AM, Nuveen, as separate and not connected.”
Despite the longevity of some of the group’s affiliates, the TIAA Henderson Real Estate (THRE) joint venture with London-based Henderson Global Investors proved short lived. Following the creation of THRE in 2014, TGAM acquired the 40% of the venture that it did not own just a year later in April 2015.
What did TIAA learn from the venture and why did it exit? Leary stresses the continuing cordial relations between TIAA and Henderson but cites financial, reputational and compliance risks as a reason to take overall control. “We are open-minded to joint ventures and this was true with THRE but, from our perspective, we would always want to be a majority owner of an affiliate, or have a clear path to a majority.”
THRE has now been folded into a new stand-alone real assets division, TIAA Global Real Assets (TGRA), the creation of which perhaps represents a more significant development for the institutional market. Like a number of other asset managers, TGAM has recognised that clients are increasingly looking for holistic solutions across real estate, infrastructure, agriculture, timber and energy as they seek stable yield and liability-friendly assets and opportunities. Leary points out that TIAA is already a top-three global investor in real estate and real assets and believes TGRA starts from strong foundations.
On its formation this year the real assets entity housed 900 employees in 31 offices and 16 countries. In addition to THRE, it includes the agriculture specialist Westchester, the forestry manager GreenWood Resources, and Churchill.
TGRA is headed by Jose Minaya, previously head of private markets. He sees the challenge of getting these entities to work more closely together as a “high-class problem”. Some managers, as they attempt to integrate their activities in real assets, have sought to bring together expertise at a sector level – for instance, in areas like energy. Minaya does see opportunities in improving communication between teams and entities. “There’s alpha you can get through information flow,” he says. “Our real estate team went to buy a mall in São Paulo, Brazil. We had been there for several years on the agriculture side, so the question is, how do we make sure we are benefiting from that information?”
The boundaries between real and traditional assets also appear to be shifting. Two good examples are the purchase by Cinven and CPPIB of the Hotelbeds Group for $1.2bn (€1bn)and CPPIB’s acquisition of a 40% stake in Glencore’s agribusiness unit for $2.5bn, both announced in April this year. Investors who think too rigidly might miss out on these opportunities because they may not fit into pre-defined asset class buckets.
“It goes down to the definition of real assets,” says Minaya. “Some investors may want to buy land in Ukraine. That might be a terrific investment but bear in mind you are getting all other types of different correlated exposure. It goes back to the question, what is the risk-return profile? There is no best way to get exposure – it’s a question of what kind of exposure you want.”
Leary draws parallels between TGRA and what TGAM is trying to do overall in creating focused solutions for investors or their consultants where previously the concentration was on individual strategies.
“Many of our clients are the largest pension funds and very often they are looking for specific or customised solutions,” Leary says. “We need to bring the whole firm and all of our real assets capabilities to them. It’s not a sale of one product or strategy, although if they are looking for that, it’s fine. It’s more looking at what they are trying to achieve and bringing the firm to them. We can also bring a balance sheet if they need annuitisation for a pension buyout or for liability-duration investing.”
Leary is keen to stress the credentials of TGAM and the wider TIAA group as long-term investors. Pointing to the Nuveen Investments acquisition, he is certain a public company would have integrated it with TGAM to achieve cost synergies. “There would have been a lot of broken glass and I actually think there would have been a lot of value destruction as opposed to creation. We took our time and we thought about it.” He also points to at least one (unspecified) acquisition that TGAM opted not to do.
As for the future, Leary says TGAM is no “serial acquirer” but will seek to add capabilities in areas like energy and infrastructure, for instance in Asia. Other ideas include global equities and emerging market capabilities.
“We look to add where there are investment or distribution capabilities that we do not have, or where there is ability to tap geographical expansion into areas where we are not currently present and where we think it would take too much time and be too difficult organically,” Leary explains.
“In public infrastructure, we have been very strong through our affiliate Nuveen Asset Management. On the private side, we are actually very good but we manage our own assets and don’t manage a lot of other assets for other clients. That is an area I would see us wanting to get into.”
Does TIAA foresee competition and even a war for talent with other infrastructure investors, particularly Canadian pension funds and others that could be potential co-investors or competitors on specific deals? “I think the war for talent is on-going and is across all our asset classes,” says Minaya. “In infrastructure, it has been more competitive of late, given the low-interest-rate environment on a global scale, so there is a lot of interest in the space and this has obviously increased the stakes and the competition, as well as the cost of human capital.”
Minaya sees limited opportunities for team lift-outs in infrastructure. “Its about the right DNA,” he emphasises. “We’ve had many teams come to us and many were very strong but is it the right DNA for our firm and how do we look at the investment spectrum? We want to attract people who have a long-term mindset versus a buy it, lever it, flip it attitude.”