Alternative asset manager Bain Capital is entering the real estate investment management business by tacking on Harvard Management Company’s 22-person real estate team.
This is the latest sign in a strategic shift for the endowment, which has been offloading real estate interests on the secondaries market for the past few years.
In August it emerged that Landmark Partners and Metropolitan Real Estate Equity Management had bought a portfolio of real estate assets totalling almost $2 billion from HMC, following on from the sale of $500 million-worth of real estate assets back in 2015.
This sale was apparently driven by Rick Slocum, who took up the newly created post of chief investment officer in March 2017, and made reducing Harvard’s exposure to illiquid assets a key priority.
HMC, which manages the university’s $35.7 billion endowment, said in January that its real estate team would spin out, part of a broader change to move HMC toward a more generalist model. HMC had a 14.5 percent allocation to real estate as of 30 June, 2016, according to its 2016 annual report. The fund’s direct real estate holdings generated a 13.8 percent return for the fiscal year ended 30 June, 2016, above its 9.4 percent benchmark.
Dan Cummings, who has led HMC’s real estate team since June 2009, will head Bain’s real estate division, effective on 1 February. The team will first manage HMC’s direct real estate investments as a separate account, then add third-party capital, he told sister publication PERE. Since 2010, HMC has invested about $3.4 billion in equity in over 140 properties.
“I don’t anticipate any significant change in how we approach the market,” Cummings said. “I’m sure there will be some change and evolution because of the firm’s operating capabilities and infrastructure… I think they’re excited at the prospect of building a very successful real estate investment business. Obviously, we hope to identify and add new investors that are interested in real estate. If growth occurs appropriately where we maintain our investment discipline, that would be ideal.”
In the last year, he said he considered a range of options for the spin-out, including going it alone. Bain, which manages $85 billion, has worked with Harvard in its other investment areas, including credit and private equity.
“In my first meeting with [Bain co-managing partners] John Connaughton and Jonathan Lavine, it became very clear to me and to them that the way we talked about our investment philosophy and approach was highly consistent with the way Bain Capital thinks about investing across their platforms,” Cummings said. “We spent a lot of time together over the last six months. We expect to drive significant synergies through our combination, with the firm’s experience across a wide range of industries, especially a number of verticals we’re active in, like life sciences.”
Boston-based Bain, founded in 1984, is among the few largest private equity firms that lack a dedicated real estate arm. The firm ranked 11tth on Private Equity International’s list of the largest private equity shops.
Bain and other top firms, such as Warburg Pincus, have made real estate investments through other funds. In July, Neuberger Berman launched a real estate secondaries group, though the firm does not have a dedicated direct real estate business.