AXA Investment Managers has been looking at the disconnect in pricing across public and private equity and has sought to take advantage of pricing dislocation.  

Justin Curlow, global head of research and strategy, real assets, pointed to the flagship European fund that privatised a US-listed REIT with prime office exposure in Germany, the United Kingdom and France around two years ago. 

The complexity of privatising a US-listed asset, AXA was able to limit some of the competition and secure a 15 per cent discount, an outcome unlikely using a direct investment strategy. 

“The complexity of the deal structure meant we could secure top quality prime trophy assets at much more competitive pricing than what would have been available in the open market,” Curlow said. 

Generally speaking, private real estate and infrastructure investments are less correlated to listed equities and bonds because they don’t trade daily. 

So rather than observing price adjustments from valuers, there are periods of limited liquidity as pricing discovery slowly comes through. 

But the onset of the COVID19 pandemic meant listed operators were reporting real time information on rent collection through their trading updates and quarterly reporting. 

“We were seeing this information in real time,” Curlow said.


Curlow outlined AXA’s approach following a similar dislocation during the sovereign debt crisis in Spain, shortly after the Global Financial Crisis, where the fund understood where pricing should be and was comfortable enough to re-enter the Spanish property market at the outset. 

“We could use our long-term knowledge and information to invest and transact and effectively lead that price discovery,” Curlow said. 

“It’s always an opportunity and a drawback investing in the private markets, but it’s that inefficiency that is inherent in the real estate space that allows us to take advantage of that illiquidity and price discovery that happens at those inflection points.” 

Geographic pivot

Covid19 has hastened the evolving trend in office space, which sees AXA moving out of some domestic European positions that are in less liquid, less dynamic, less growth-oriented cities. 

“We will continue to use offices, but the types of offices and how much we’re going to need are the big question marks today,” Curlow said. 

“We’ve been trying to recycle capital out of those sub-market areas, or regional city locations, into the high quality key CBDs of the world that are highly connected, have vibrant, knowledge-based workforces and service-oriented businesses.”

Curlow said the European office landscape suffers a huge level of obsolescence and aged stock, with more than 60 per cent built more than twenty years ago and only five to ten per cent built in the last ten years. 

“And only half of that stock incorporates those post-COVID features that are in demand like air filtration and environment and social features,” he said. 

“So we’re not necessarily looking towards a growth in demand from a net absorption standpoint.”

However AXA does expect companies to rationalise their floorspace and use it as a talent recruitment and retention tool that fosters a dynamic corporate culture rather than a cost saving area. 

Over the last twelve months, Curlow said there has been a redefinition of what qualifies as a prime or core asset by the market. 

He pointed to office buildings, which needed to have location, building quality, tenancy, and  credit or leasing consideration to qualify and attract any liquidity. 

“As soon as you lost one of those or had an investment that didn’t have one, liquidity dries up quite considerably on the equity side,” he said. “And debt availability just didn’t exist.”

“That was part of the reason why the equity piece needed to see the price adjustment.”

As such, there was subdued transactional activity and debt and lending instead focused on multifamily assets and logistics, he said. 

Where there was perceived resiliency, the risk aversion pricing didn’t really adjust because of the weight of capital on the sidelines. 

“Investors were effectively jumping over one another, trying to put capital to work in what were deemed as the most resilient investments,” he said. 

AXA used its size, leverage and relationships to cut out the competition and look towards large, complex transactions, such as a large off-market European life science portfolio. 

“The ultimate impact Covid19 had was highlighting and emphasising the inefficiencies inherent in both the debt and equity piece,” Curlow said. 

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