prupim - real estate investment · pdf fileprupim real estate investment management •...

PruPIM - REAL ESTATE INVESTMENT MANAGEMENTMartin Moore, Managing Director, PruPIM

2

PruPIMReal Estate Investment Management

• Market context

• Business dynamics

• Recent achievements

• Tomorrow’s opportunities

AGENDA

3

Source: DTZ

MARKET CONTEXTDiverse range of investors with activity at record levels

UK REAL ESTATE PURCHASING ACTIVITY

0

10

20

30

40

50

60

1997 1998 1999 2000 2001 2002 2003 2004 2005

Other / Unknown Quoted property vehicles Other listed vehicles Institutions Private property vehicles Private property co's Other private investor

£bn

4

Period to 31/3/2006. Source IPD

MARKET CONTEXTStrong performance across all sectors of the UK marketUK DIRECT PROPERTY TOTAL RETURNS TO 31 MARCH 2006

10

12

14

16

18

20

22

24

1 Yr 5 Yrs 10 Yrs

All Property Shops Sh Centres Ret Warehouse Office Ind

%

5

BUSINESS DYNAMICSBroad skills base supports the creation & operation of real estate portfolios

ASSETS UNDER MANAGEMENT

0

5

10

15

20

25

30

£7.1bn£8.3bn

£10.4bn£11.5bn

£14.5bn

£17.2bn

£23.0bn

£bn • One of the UK’s largest real estate investment managers.

• Widely respected research team.

• Proven fund, investment and asset management capability.

6


• One of the UK’s largest real estate investment managers.



• Successful development team.

ASSETS UNDER DEVELOPMENT

The Hub, BirminghamThe Hub, Birmingham

Manchester

Finsbury Circus

7


Industrial Shops

OthersOverseas

Office

RetailWarehouse

Sh Centres

SECTOR BREAKDOWN AT 31.12.2005

• Sector Specialists.





8


ASSETS UNDER MANAGEMENT BY BUSINESS STREAM

Institutional Annuities Retail

InternationalLife • Business stream overlay.

• Sector Specialists.





9


• Business stream overlay

• Sector Specialists

• One of the UK’s largest real estate investment managers

• Widely respected research team

• Proven fund, investment and asset management capability

• Successful development team

• A fully integrated model

£m

5

10

15

20

25

2000 2001 2002 2003 2004 2005

PruPIM UNDERLYING PROFITS

10


PruPIM UNDERLYING PROFITS

£m

5

10

15

20

25

2000 2001 2002 2003 2004 2005

ASSETS UNDER MANAGEMENT BY BUSINESS STREAM

Institutional Annuities Retail

InternationalLife

11


ACHIEVEMENTS & OPPORTUNITIESAn outstanding performance record

• Large but mature funds

• Continued focus on performance delivery

• Potential benefits through pursuit of new markets…

• …and through taking on more long term development projects

• Firm foundations and scaleable infrastructure

PRUDENTIAL

SCOTTISH AMICABLE

LIFE FUNDS

0

5

10

15

20

25

SAIF Fund 21.5 17.8 13.4Benchmark 20.1 16.0 12.8Relative 1.4 1.8 0.6

1 Yr 3 Yrs 5 Yrs


%

0

5

10

15

20

25

Life Fund 20.1 16.7 13.2 14.1Benchmark 19.7 15.9 12.7 12.7Relative 0.4 0.8 0.5 1.4

1 Yr 3 Yrs 5 Yrs 10 Yrs

%

£11.1bn

£1.9bn

12


ACHIEVEMENTS & OPPORTUNITIESA growing area of our business

• Maintaining consistent outperformance is key

• Experiencing strong organic growth

PRUDENTIAL STAFF PENSION SCHEME

PRUDENTIAL PENSIONS LIMITED

0

5

10

15

20

25

PSPS Fund 21.1 17.7 13.6Benchmark 20.2 16.6 13.1Relative 0.9 1.1 0.5

1 Yr 3 Yrs 5 Yrs

0

5

10

15

20

25

PPL Fund 20.1 17.5 14.0Benchmark 18.5 16.0 13.0Relative 1.6 1.5 1.0

1 Yr 3 Yrs 5 Yrs

INSTITUTIONAL%

%

£540m

£530m

• Use skills to generate new opportunities…

• …and to build new strategic partnerships

13

ACHIEVEMENTS & OPPORTUNITIESA growing area of our business

INSTITUTIONALASSETS UNDER MANAGEMENT

0

500

1,000

1,500

2,000

2,500

3,000

2003 2004 2005

£m • Maintaining consistent outperformance is key

• Experiencing strong organic growth

• Use skills to generate new opportunities…

• …and to build new strategic partnerships

14

ACHIEVEMENTS & OPPORTUNITIESRelentless pursuit of “collaboration dividends”

ASSETS UNDER MANAGEMENT

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 Q1 2006

£m • Property assets with “bond like”characteristics continue to present interesting opportunities

• Significant further potential, capitalising on synergies with the M&G FI team

• Creative sourcing gives us a real edge

• Ambition to work with the FI team to leverage our experience in this area…

• …and to jointly develop skills and products in new areas too

ANNUITIES

15

ACHIEVEMENTS & OPPORTUNITIESWorking in partnership with M&G Retail

FUND SIZE SINCE LAUNCH

0

100

200

300

400

500

600

Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06

£m

• Launch of M&G Property Fund in March 2004 – with growth exceeding initial expectations

RETAIL

16

ACHIEVEMENTS & OPPORTUNITIESWorking in partnership with M&G Retail

RETAIL

• Building on that success, launched the M&G Property Portfolio in November 2005

• Creative sourcing and enviable market network gives us a real edge

• Significant future opportunity pipeline– Charities– Fund of Funds– REITS – track record, expertise, brand,

investment philosophy, customer base and distribution channels, “no baggage”

400

450

500

550

Nov-05 Dec-05 Jan-06 Feb-06 Mar-06

Fund size(£m) • Launch of M&G Property Fund in

March 2004 – with growth exceeding initial expectations

17

ACHIEVEMENTS & OPPORTUNITIESBuilding a global platform

INTERNATIONAL

• Extensive initial research programme

Garden State Plaza, New Jersey - Retail

North Michigan AveChicago, Illinois

Holland Cross, Ottawa Canada – Retail

Sherman Oaks, California – Retail

Plessis-Belleville,Suburban Paris

135-139 Rue de Rennes,Paris – Retail

Michelin Warehouses –Ennery-Metz

90-94 Rue D’Antibes,Cannes – Retail

3-5 Boulevard de la Madeleine, Paris,

Grand Bazar de Lyon, Lyon - Retail

ING France/Belgium Retail Property Fund

Nara Building,Seoul - Offices

Northgate Building,Seoul - Offices

LiFung Distribution Hong Kong - Offices

Compass Point Singapore - Retail

400 George St, Sydney – Offices

• Investment momentum gathering pace

18


INTERNATIONALASSETS UNDER MANAGEMENT

0

200

400

600

800

1,000

1,200

1,400

2001 2002 2003 2004 2005

£m• Extensive initial research programme


19


INTERNATIONAL

15.8%

27.7%

26.0%

36.7%

15.0%

3 Yrs

19.4%17.6%10.6%IPD Universe

32.4%

29.3%

43.6%

18.4%

2005

25.6%

16.3%

53.4%

8.2%

2004

25.2%

33.0%

16.0%

18.7%

2003

Overseas Total

Asia

North America

Europe (excl UK)

All returns are in UK Currency

INVESTMENT RETURNS

• Extensive initial research programme


• Early results very encouraging

• Now intend to leverage this experience– Announced JV with Prudential Corporation

Asia– Potential for a global range of funds

20

PruPIMReal Estate Investment Management

• Efficient, well integrated, business

• Broad skills base

• Impressive track record

• Determined to exploit “collaboration dividends”

• Strong historic profits growth

CONCLUSION

• Exciting potential

M&G RETAIL

Gary Shaughnessy, Chief Executive, UK Retail, M&GWill Nott, Chief Executive, M&G International

WINNING IN RETAIL ASSET MANAGEMENTGary Shaughnessy, Chief Executive UK Retail, M&G

23

EUROPEAN RETAIL ASSET GROWTH1995 to 2010

WINNING IN RETAIL ASSET MANAGEMENTRetail asset management is a growth market

Realistic CAGR 8.4%

CAGR 9.1%

Aggressive CAGR 11.6%

0

1

2

3

4

5

6

7

8

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010 2010

€ tri

llion

24

WINNING IN RETAIL ASSET MANAGEMENTBut it is extremely competitive

• 25,000 funds registered in Europe

• 47 M&G funds

• More funds than investible equities

• How is M&G succeeding in this marketplace?

25

WINNING IN RETAIL ASSET MANAGEMENTWhat do you need to win in retail asset management?

• Exceptional investment performance

• An attractive and scalable product range

• Breadth of access to distribution

• An ability to retain customers

• Market recognition

26

Source: Standard & Poor’s as at 28 April 2006, bid to bid with net income reinvested. * S&P Global Equity sector

Fund Fund 1 year 3 year Quartile sinceManager quartile quartile took over fund

M&G American Aled Smith Top decile Top decile Top decile

M&G Corporate Bond Richard Woolnough 1 1 1

M&G Fund of Inv Trust Shares Alex Odd 1 Top decile 1

M&G Global Basics* Graham French Top decile Top decile Top decile

M&G Global Leaders Aled Smith Top decile Top decile Top decile

M&G Global Technology Aled Smith & Cyrille Filott 1 2 1

M&G High Interest Jim Leaviss 1 Top decile 1

M&G International Growth Graham French 1 Top decile 1

M&G Managed David Jane Top decile Top decile 1

M&G Managed Growth Graham French Top decile 1 1

M&G Pan European Giles Worthington Top decile Top decile Top decile

M&G Recovery Tom Dobell 1 1 Top decile

M&G Smaller Companies Simon Bailey Top decile 1 1

M&G UK Growth Simon Murphy Top decile 1 Top decile

M&G UK Select Mike Felton 1 2 Top decile

WINNING IN RETAIL ASSET MANAGEMENTDelivering exceptional investment performance across the board

27

Source: S&P as at 30 December 2005

WINNING IN RETAIL ASSET MANAGEMENTExceptional performance - strong in our core market of UK equities

Position inPerformance in 2005 IMA sector

M&G Recovery Fund

M&G UK Select Fund

M&G UK Growth Fund

M&G Smaller Companies Fund

Tom Dobell

Mike Felton

Simon Murphy

Simon Bailey

Top decile

Top decile

Top decile

Top decile

28

M&G RETAIL NET SALES

Net sales Q1 2006 breakdown by launch date

75.4%

24.6%

Launched 2000 onwards Launched pre 2000

1.3

1.1

1.6

0.6

0.4

0.5

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1st Qtr

£ bi

llions

M&G Corporate Bond M&G High Yield Corporate BondM&G Global Basics M&G Property PortfolioM&G Leveraged Loans funds M&G Property Fund

WINNING IN RETAIL ASSET MANAGEMENTAn attractive and scalable product range

Cumulative assets under management in products launched since 1996

A STRONG TRACK RECORD IN PRODUCT INNOVATION

Launch of M&G Leveraged Loans

funds August 2005

Launch of M&G Property Fund

November 2005

Launch of M&G High Yield Corporate Bond October 1998

Launch of M&G Property Portfolio March 2004

Launch of M&G Corporate Bond January 1996

Launch of M&G Global Basics

November 2000

29

48.1%

13.0%

25.4%

12.7%0.8%

Direct Discretionary IFA Europe Asia

WINNING IN RETAIL ASSET MANAGEMENTBreadth of access to distribution has diversification benefits

FUNDS UNDER MANAGEMENT Q1 2006By channel

11%

19%

19%

47%

4%

Direct Discretionary IFA Europe Asia

NET SALES Q1 2006By channel

30

WINNING IN RETAIL ASSET MANAGEMENTAn ability to retain direct customers

0

2

4

6

8

10

12

Q100

Q300

Q101

Q301

Q102

Q302

Q103

Q303

Q104

Q304

Q105

Q305

• Biggest single reason for redemption is death– 21% of direct redemptions

• Value of the significant direct book impacted by actuarial assumptions –demographics working in our favour

MARKET SHARE OF DIRECT RETAIL REDEMPTIONSQuarterly average

31

WINNING IN RETAIL ASSET MANAGEMENTSuccessfully implementing a multi-regional distribution strategy

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

Apr

-02

Jul-0

2

Oct

-02

Jan-

03

Apr

-03

Jul-0

3

Oct

-03

Jan-

04

Apr

-04

Jul-0

4

Oct

-04

Jan-

05

Apr

-05

Jul-0

5

Oct

-05

Jan-

06

€m

• Spreading competitive strengths and diversifying risks across a range of (largely uncorrelated) markets

• Exponential growth and accelerating

• Cost effective approach with product range using UK OEIC

• Recently launched into Asia – Gross sales £51m in Q1 2006

M&G INTERNATIONAL ASSETS UNDER MANAGEMENTFrom launch to end March 2006

32

UK:DirectIFALife and Pensions PlatformsDiscretionary

AsiaDistribution via PCA

Middle East

WINNING IN RETAIL ASSET MANAGEMENTSelective profitable international expansion

DISTRIBUTION OF M&G FUNDSTaking the existing model for manufacturing and distribution and expanding to new geographies

Europe:GermanyItalyAustriaSpainSwitzerlandLuxembourg

South Africa

Latin America

33

Source: TNS

WINNING IN RETAIL ASSET MANAGEMENTStrong Brand

0% 20% 40% 60% 80% 100%

M&G

Merrill Lynch

Schroders

Fidelity

Jupiter

Gartmore

Invesco

Artemis

New Star

Total Spontaneous AwarenessTotal Prompted Awareness

TOTAL BRAND AWARENESS April 2006

AWARD WINNING ADVERTISING

34

Luxembourg

AustriaGermanySpain

UK

• Ratings

• Best Fund Group over 3 years in

WINNING IN RETAIL ASSET MANAGEMENTIndependent recognition of this success

35

WINNING IN RETAIL ASSET MANAGEMENTIndependent recognition of this success

36

WINNING IN RETAIL ASSET MANAGEMENTWhat do you need to win in retail asset management?


• Breadth of product

• Distribution strength

• Retaining customers


• Plus…

• Strong business management

37

0

5

10

15

20

25

30

2002 2003 2004 2005

£m

WINNING IN RETAIL ASSET MANAGEMENTUsing scale and controlling costs

• Focusing on the core competencies of an asset management business

• Improving capital efficiency and operational gearing

• Outsourcing of transfer agency

• Rationalisation of funds

ADMINISTRATION COSTS2002 to 2005

38

WINNING IN RETAIL ASSET MANAGEMENTEnsuring a competitive pricing strategy

• Brought charges to market levels– AMC on 19 active equity funds increasing to 1.5%

• £12m per annum positive impact on profits

• Impact accelerated by asset growth and net sales

• Far from slowing down sales, it has ‘unblocked’ them

39

WINNING IN RETAIL ASSET MANAGEMENTForging strong links across the Group

• Financial backing of a strong parent– European distribution launch– Seeding of new product launches

• Investment Management expertise in local centres (PPM America, Asia)

• £100m p.a. of sales via Prudential linked products

• Looking to develop these links further

40

WINNING IN RETAIL ASSET MANAGEMENTM&G Retail has everything needed to win in retail asset management


• Breadth of product

• Distribution strength

• Retaining customers


• Strong business management

• What are the benefits?– Strong growth in sales– Strong profit growth

41

GROSS SALES BY CHANNEL

0

200

400

600

800

1000

1200

Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06

£000

s

UK Europe Asia

WINNING IN RETAIL ASSET MANAGEMENTStrong sales growth across each channel

42

WINNING IN RETAIL ASSET MANAGEMENTStrong profit growth

RETAIL PROFITS

-10

-5

0

5

10

15

20

25

30

35

40

2002 2003 2004 2005

• Impact of

– Net sales

– Cost savings

– Outsourcing

– Market appreciation

– Pricing changes

BUILDING ON THIS MOMENTUMWill Nott

44

BUILDING ON THIS MOMENTUMContinuing to win in retail asset management


• Delivering attractive and scalable products

• The right pricing

• Taking advantage of industry trends: open architecture

• First class client service

45

• Looking ahead there are two key questions for M&G

– How has this performance success been achieved?

– Is it sustainable?

BUILDING ON THIS MOMENTUMWinners all have exceptional investment performance

Luxembourg AustriaGermanySpainUK

• Best Fund Group over 3 years in

46

BUILDING ON THIS MOMENTUMHow has this performance success been achieved?

• A boutique culture

• Talented individuals

• Unconstrained from benchmarks

• First class investment infrastructure

47

BUILDING ON THIS MOMENTUMIs this performance sustainable?

• Future performance depends on retaining, attracting, developing and empowering the best people

– Fund manager turnover incredibly low– Ability to recruit talented managers– Strong history of developing in house talent

• Compensation linked to performance and profits

48

BUILDING ON THIS MOMENTUMIs this performance sustainable?

• Building distinct investment franchises

• Supporting the fund managers with a rigorous, robust and relevant infrastructure

Research analysts

Embedded into the investment

franchises

Portfolio Strategy &

Risk

Supporting portfolio

construction and actively managing

investment risk

Portfolio analysts

Supporting the fund managers in

marketing and client servicing

49

BUILDING ON THIS MOMENTUMThe global equity franchise

• 2 AAA Citywire managers

• Set up in 2000

• A distinct investment proposition, being recognised by the market

Graham French Aled Smith

Embedded analysts

Portfolio Strategy & Risk

Portfolio analysts

50

Launched November 2000

BUILDING ON THIS MOMENTUMWe have experienced great success with M&G Global Basics

GROSS SALES IN M&G GLOBAL BASICS

1 year 3 years Sincep.a. launch p.a.

M&G Global Basics 47.1% 41.1% 17.2%

S&P Global equity sector 31.8% 21.2% 0.0%

Index 31.7% 24.0% 6.0%

DECILE RANKING 1 1 1

M&G GLOBAL BASICS PERFORMANCE

0

100

200

300

400

500

600

700

800

2000

2001

2002

2003

2004

2005

YTD Mar

06

£m

From launch to end March 2006 As at end March 2006

51

Managed by Aled Smith since September 2002

BUILDING ON THIS MOMENTUMM&G Global Leaders is going the same way – and could go further

1 year 3 years Sincep.a. tenure p.a.

M&G Global Leaders 49.6% 34.5% 28.8%

S&P Global equity sector 31.8% 22.5% 18.5%

Index 30.9% 21.1% 18.5%

DECILE RANKING 1 1 1

M&G GLOBAL LEADERS PERFORMANCE

300

320

340

360

380

400

420

440

460

480

500

Feb-06 Mar-06 Apr-06

£ m

M&G GLOBAL LEADERSFunds under management

Citywire Fund Manager International, April 2006

52

BUILDING ON THIS MOMENTUMFixed Income – maintaining our track record for innovation

• Leveraging internal investment capabilities for the Life Fund

• Significant demand for income

• Continue to look at further Fixed Income opportunities

80

100

120

140

160

180

200

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-0

6Feb-0

6Mar-0

6Apr-0

6

£ m

M&G LEVERAGED LOANS FUNDSFunds under management since launch

53

BUILDING ON THIS MOMENTUMProperty – growing fast with more to come

• Strong investment capability has enabled M&G to keep these funds open where others have had to close

• Continue to look at opportunities in this asset class

0

200

400

600

800

1,000

1,200

1,400

Mar-04

Jun-0

4Sep-0

4Dec-0

4Mar-0

5Ju

n-05

Sep-05

Dec-05

Mar-06

£ m

M&G PROPERTY FUNDSFunds under management since launch

Launch of onshore fund

54

BUILDING ON THIS MOMENTUMEnsuring we convert performance into profits

• Sustainable, durable and proven alpha will become more valuable

• As an investment led organisation, understanding the right price for this alpha is crucial

• We are striving for profitable sales growth

55

CONTINUING THIS SUCCESSThis performance sets M&G up to take advantage of industry trends

• The distribution landscape is changing– Growth in open architecture

– UK– Banks– Life and Pensions links

– Europe– Banks

– Asia

56

BUILDING ON THIS MOMENTUMOpen architecture presents both opportunities and challenges

• Significant opportunities– The rise of the professional retail buyer/gatekeeper – Large volumes

• Significant challenges– Client loyalty diminishes– Fund manager stability– Asset allocation changes

• Greater volatility of fund flows

• Diversify sales by country, channel and asset class

57

Source: FERI FMI

BUILDING ON THIS MOMENTUMThe importance of fund manager stability

-800

-600

-400

-200

0

200

400

600

2004 2005

NET SALES OF ‘A EUROPEAN EQUITY’ FUND FOLLOWING MANAGER DEPARTURE

€m

58

Source: FERI FMI/CSAM Fund Buyer Survey 2005

WHAT ARE THE MOST IMPORTANT CRITERIA IN FUND SELECTION?Responses of fund buyers placing > €1bn in 2005

BUILDING ON THIS MOMENTUMM&G is ticking the boxes for professional buyers

0

5

10

15

20

25

Fundmanager

experienceand style

Fundperformanceover 5 years

Fundperformanceover 3 years

Fund ratings Reputationand brand

New fund/newstory

Fundperformanceover 1 year

Commissionspaid

Marketingsupport

Nationality ofgroup

Brandinvestment

%

What does ‘brand’mean in an institutional

world?

59

BUILDING ON THIS MOMENTUMDeveloping a ‘brand’ in this environment is all about client service

• Delivering first class institutional servicing to the retail market

• Requires increased focus on marketing and client services and articulation of investment processes

• “My thanks for the half yearly report which is really exemplary and strengthens me in my decision to add the fund to our range.”

60

Source: FERI FMI

EUROPEAN RETAIL ASSET GROWTH1995 to 2010

BUILDING ON THIS MOMENTUMThe opportunity is considerable

0

1

2

3

4

5

6

7

8

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2010 2010

€ tri

llion

Agg

ress

ive

Rea

listic

61

M&G RETAILBuilding on this momentum…

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