Prudential?s $1 trillion asset manager bets on real estate, debt
Mortgage Broker News
PGIM Chief Executive Officer David Hunt said the $1 trillion asset manager is betting on debt and real estate as pension funds and insurers turn to private investments for better returns.
“Real estate has been one of the real beneficiaries of this search for yield,” Hunt, who runs Prudential Financial Inc.’s investment manager, said in an interview Monday at PGIM’s New York office. “We think people will more and more trade some liquidity for return, and they will probably allocate less to public markets and more to private markets.”
Hunt has almost doubled assets under management to $1 trillion since joining from McKinsey & Co. in 2011, and led the firm’s expansion in India with the purchase of a Deutsche Bank AG unit this year. The unit, which offers asset classes such as bank loans and emerging markets equity, was renamed PGIM this year and its private capital group lent more than $5.3 billion in the first half of 2016.
Institutional investors have been coping with low bond yields, suppressed by years of easing by central banks around the world. Some insurers boosted investments in commercial real estate and infrastructure debt. TIAA started a $667 million venture last year to bet on timber, and CNO Financial Group Inc. agreed this year to invest $250 million with Tennenbaum Capital Partners in a direct-lending push.
Agricultural Push
“We’ve invested and are building up our agricultural capabilities,” Hunt said. “More and more large, long-term investors are saying, ‘Yes, talk to me about row crops, timber.’ And we’ve always had a small business in that, but we’ve made an investment to build that out in a much broader way.”
He said that PGIM already has teams for betting on assets such as commercial real estate, and wagers on areas including public fixed income, private debt and equities. It manages money for more than 1,250 third-party clients, with offices in areas including Asia and Europe, according to its website.
Investors still aren’t fully comprehending the fact that interest rates could remain low for even longer, Hunt said. That’s leading some to seek out leveraged bets that may not make sense, he said.
“Our advice to clients is, ‘Move your expectations down,’ ” Hunt said. “Don’t be seduced by some of these returns that have a lot of leverage in them. They will look good for a bit, but over a cycle they won’t.”
Building Team
Hunt hired Jeffrey Becker, who previously led Voya Financial Inc.’s asset manager, to head the Jennison Associates business this year and added Goldman Sachs Group Inc.’s Stephen Warren at the fixed-income unit. Hunt said developing talent internally gives the firm a “real edge,” with the average tenure of a portfolio manager being about 15 years. Still, he said he may not be done hiring.
“The sell side has some real dislocation and some very talented people who were on the sell side, have been looking to move to the buy side,” Hunt said. “That is a big opportunity for us to pick up some really good people.”
Investors including Warren Buffett and Vanguard Group Inc. founder John Bogle have faulted the fees charged by asset managers and decried the lack of performance. Hunt said that while most of the shift to passive investing is focused on equities, a smaller part of PGIM’s strategies, he’s aiming to provide options.
“Our success is measured by whether our clients are beating their risk-adjusted benchmarks,” Hunt said. “You’re going to see a gradual weeding-out of people who don’t turn out to be truly good investors and aren’t delivering that risk-adjusted return.”
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