Alternative investment solutions

Ben Gutteridge (00:17):

Hello everyone. And a very warm welcome to this, the very first recording in our Alternative Opportunities audio series, uh, an event that may yet prove a seminal moment in the history of alternative investing. Perhaps that's a little too ambitious, but we, we shall see.

Ben Gutteridge (00:32):

Now, joining me on this adventure, I'm thrilled to introduce my esteemed colleague, Kate Browning, an Alternative Investment Specialist within the Invesco Solutions team. Kate, how are you? Excited, I hope.

Kate Browning (00:46):

I'm very excited. We're all thrilled to be apart of this project. So thank you for driving, Ben.

Ben Gutteridge (00:51):

Well, it's great to be working with you on this. And, uh, as listeners may have noticed, I didn't introduce you, Kate, as co-host for this series. I think that label would be a bit of an injustice. You'll certainly be helping me quiz our guests, but I'll also be, um, asking questions of you given your in-depth knowledge of the subject. So in the absence of a label, I might just refer to you as the oracle. What do you think about that? Is that, is that suitable?

Kate Browning (01:16):

I, I, I'll take the oracle. That's, that's a-

Ben Gutteridge (01:17):

(laughs)

Kate Browning (01:18):

... that's a good promotion. Thanks Ben. (laughs)

Ben Gutteridge (01:20):

Well, very modest of you, but, um, I'm sure our listeners will appreciate that reference in, in due course. And now before we bring in our guest, given this is the first in our series, why don't you tell listeners a little bit about your role at Invesco within Alternatives, Kate? And then why we're recording this series of interviews.

Kate Browning (01:37):

Sure. Happy to. As Ben mentioned, I'm a Specialist on our Client Solutions Team. And I cover Alternative Investments and our Alternative Solutions platform. As apart of that, I'm also deeply involved in building out he investment platform and building out partnerships with our Alternative Specialist boutiques. I also really serve within the platform as the bridge between the Investment Team and the clients we serve.

Ben Gutteridge (02:01):

Okay, great. Well, thanks Kate. A really nice overview there. And I said, it's, it's great to have you involved in this project. Indeed, you've already proven your value, I think, overruling my suggestion to, to name the series Alternative Facts, which I think was probably the, the right decision. But, uh, anyway, let's now finally turn to the topic in hand. This week in our inaugural Alternative Opportunities interview, we shall be covering alternative credit. And it gives me great pleasure to welcome Joel Holsinger, Co-Head of, uh, Alternative Credit at Ares Management Corporation, a firm with tremendous pedigree within this area of investing, indeed in all areas of liquid investment. Joel, thank you so much for being so patient and for joining us. Uh, are you well?

Joel Holsinger (02:44):

I am great. Thank you for having me. I, I appreciate it.

Ben Gutteridge (02:47):

Well, as I said, we're delighted you could be with us. No doubt you're extremely busy, and we've got a lot to get through. And on that basis, we'll get straight into the, uh, into the interrogation, uh, if you like, starting, I guess, quite simply in order to give us a good platform for debate by asking what your interpretation of alternative credit actually incorporates.

Joel Holsinger (03:09):

Sure. So alternative credit, the way we look at it is, if you think of private equity or you think of direct lending, most of that is always focused on EBITDA or cash flow. And when we're looking at alternative credit, it's really asset focused, you know. And what we mean by asset focused is, we're generally looking at underlying pools of loans, receivables and leases. And, and pools is important, because we're generally not taking single name risk. We're generally looking at diversified piece, which really protects on the downside.

Joel Holsinger (03:39):

And then we're structuring investments across that that effectively basically go through and we're either lending against that portfolio, sometimes lending to other lenders, or we're acquiring a pool of assets, or sometimes we're investing in liquid form across, uh, the asset-backed securities market. And I think that, you know, the thing that's, that, that's important for us is it's a very deep seasoned team. You know, we have close to 40 plus people, investment professionals, across alternative credit. And the platform that Ares provides, as you kind of hinted to, really gives us the advantage, because you need to have a big sourcing channel, you know. Investing at its purest is, is pattern recognition. It's being able to see a lot and being able to source a lot, and then go and structure deals from a downside protection that kind of fit the mandate and what you're looking to invest.

Ben Gutteridge (04:29):

Okay. Well, a little bit, uh, of color on what the asset class is, but also how you approach it in your philosophy. We'll come back to that, uh, more in a moment. But, um, perhaps, you know, it's great to get a sort of foundation, but perhaps you could give us some examples, perhaps some more popular examples of where client money may actually end up.

Joel Holsinger (04:48):

Sure. I think a great example, uh, a lot of people would be familiar with is, if you went to buy something online right now, whether it be on Amazon, whether it be on any other kind of eCommerce website, at the end of the transaction, there'd be a section that would say, "Pay with Affirm." Affirm is a company that recently went public about a month ago and had a very good public, uh, introduction. And behind the scenes, that is a consumer finance company. It is effectively a consumer finance company that's funding those purchases from literally smaller dollars all the way up to larger dollars.

Joel Holsinger (05:21):

We actually lend to Affirm. There's a pre- there, this isn't public. We, we announced a press release on a transaction we did with them over last summer. And so as much as they have multiple sources of capital in their financing, we're kind of their flexible option that allows them to not be dependent on the securitization markets. And so we end up getting a spread that's well wide of what you would see in the securitization market for our investment, but from their standpoint, they're getting the flexibility to be able to do the end of line loans they need to and not be dependent on a portion of their balance sheet for the securitization markets.

Joel Holsinger (05:58):

Another thing we've done in a more recent basis is, we acquired a large portfolio of single-family rentals, so homes where they're rented out to individual families. And the thing we find attractive in that space is the stability. You know, a lot of things have been impacted by COVID, but if you look at that portfolio, we acquired 14,500 homes and a diverse portfolio across the US. And that portfolio prior to us taking over was close to 98% occupancy and 97% payment rate, so very stable cash flows. And that's key in everything we do.

Joel Holsinger (06:35):

We're always trying to structure investments from the standpoint of, of diversity in portfolios, but then looking at those contractual cash flows that come off of those portfolios and making sure that we can still run draconian scenarios. And, and when we say draconian, it's really straightforward. You look at the worst it's been, you know, in the most asset classes, that's the Great Financial Crisis, the GFC. And we're looking at scenarios that are generally two or three times what we've seen in those scenarios and making sure that our investment we structure, whether it's acquiring the portfolio or whether it's lending against the portfolio, still holds up. And the thing we're probably most proud of is the downside protection we provided to our investor over years. We have a 1.6 basis point annualized loss rate since 2011 across alternative credit, which is something that would hold up to IG or even high-grade type of loss ratios.

Ben Gutteridge (07:29):

Okay. Well, thanks Joel. It's great to, as I said, to get a scene setter on the asset class, but also to get, get more color on how you approach it. I might ask Kate now, you know, sort of maybe based on some of the things that Joel has said but also your own insights, why alternative credit is an opportunity that Invesco is so keen to bring to the attention of clients.

Kate Browning (07:49):

Sure. I think as Joel mentioned, we see within alternative credit a really compelling diversification story both from the lens of credit risk as well as underlying structures and cash flow profiles as well. I think it's also an interesting access point to what we consider underbanked assets and gaps in the market. And we think the other interesting lens is being able to take a relative value approach to investing across alternative credit.

Ben Gutteridge (08:16):

Thanks Kate. I think sort of for both of you, so really appreciating why, particularly given the, the types of assets Joel is referring to, why these types of, uh, assets might perform differently to sort of mainstream bond markets. But I mean, is that actually the case, Joel, when it comes to valuing these assets? I mean, what happens to these investments when there's sort of a blowout in the high yield market or there's a big move in, in treasury markets? You know, what, what, what happens to the pricing of these assets?

Joel Holsinger (08:45):

Yeah, I think one of the things, uh, I stated earlier that's important to that is, we're generally looking at underlying portfolios, right? So you're not taking that single name risk. So when you had the summer where you had a lot of stress across pieces, it's a time period where it's very hard to decide how to move forward, right? There's a lot of risk. There's a lot of piece. And if you're looking in individual corporate name, you're trying to decide how it's gonna perform, what's the liquidity gonna look like, how long of a bridge do I need to get to the other side, what's the other side gonna look like.

Joel Holsinger (09:15):

When you have large portfolios of these deals, and especially since they have contractual underlying cash flows, because, again, it's loans, leases and receivables, it really takes away a lot of that underlying risk. So what we found in, and when we look at it, it's highly uncorrelated to other asset classes because of that diversity, because of those contractual cash flows that are comin' off. And there's another really important feature that I didn't hit on earlier, which is if you think of private equity and if you think of kind of corporate direct lending, when you invest in that space, you make an investment, so private equity you buy a company, or corporate direct lending, you, you lend to a company. And you end up basically having a five or seven year period where if you're in direct lending, you get some coupons, but it's a small portion of your return. It's rarely dependent on terminal value, right? So it's an IPO, it's an exit, it's a refinance, whether it's a direct lending or private equity.

Joel Holsinger (10:07):

The investments we structure are generally dependent on that contractual cash flow, so it's very high velocity. If you were to say the number one reason we've had such low loss rates over time, it's because you're getting that cash back over time. And so you're de-risking the underlying transactions as you're going through. And that's what's really led to the outperformance when we hit periods of volatility through cycles.

Ben Gutteridge (10:29):

I mean, it's interesting that high velocity of money piece, my natural inclination is to think that that's high yield. That's a very high yielding asset, and therefore carries more risk. But that, that is sort of a misstep, I guess, isn't it, from, from my-

Joel Holsinger (10:39):

No, because in [crosstalk 00:10:41] high yield, you're getting a high coupon but you're still getting a principle piece back, right? If you think of what we're doing in alternative credit, and it goes across a number of different investment asset classes, we're getting both principle and interest. We're getting the underlying portions back. So the velocity is not just sitting there saying, "Oh, it's high coupon to higher risk." The velocity is often 15 to 20% of just getting your cash back.

Joel Holsinger (11:03):

So think about it as if you're doing a auto loan, well, you're paying back the auto loan over a three year period. So if you had a large portfolio of diverse auto loans, there's a lot of money coming back, because it's not just the interest you're getting back, it's also the principle you're getting back on some of those underlying cars. And so that's what leads to the high velocity of cash flows. It's not just a high rate, like you would have in a high yield. And then you're still dependent on the principle takeout at the end of the investment.

Kate Browning (11:30):

How would you say, Joel, the opportunity set has evolved in alternative credit over time?

Joel Holsinger (11:35):

So it's interesting, because there's higher barriers to entry in alternative credit than you'd get in some traditional markets. As much as size matters, obviously even in direct lending, it really matters when you think of alternative credit. Because when we're doing transactions, a lot of capital's been raised in the space that it's just a litigation finance or it's just d- a lending, uh, specialty finance assets classes, or it's aircraft or other things. But they're niche funds, right? They've just raised a three or $400 million funds, and they're doing smaller transactions to niche underlying pieces.

Joel Holsinger (12:08):

There's no real relative value. You know, real relative value is looking across all of those asset classes. So there's only a handful of platforms that really have the scale they need and the sourcing they need and the expertise they need. Our 40 person plus team, over half of them have been doing this for 20 years or more. You need to have a seasoned team, you need to have a big team to be able to execute on these pieces.

Joel Holsinger (12:29):

So what's happened is, where did those teams use to exist, right? If you go back a decade ago, you had the commercial banks that basically exited what is direct lending the day, and that institutionalized the direct lending asset class. So Ares was a big beneficiary of that. We're the largest direct lender in the US and Europe today, but you've had other large players kind of come through. That started post 2009.

Joel Holsinger (12:52):

If you look at alternative credit, it's different, because a lot of that was done more on the prop desks or effectively was at GE Capital or CIT. So you had the prop desks were using bank balance sheet capital to go invest in these very high quality assets at very low costs, and you had commercial paper that was supporting the markets of GE Capital and CIT. As that unwound, really over the last three to five years, not 10 years ago, what you've seen is a widening of the underlying asset classes. So as much as the asset spreads around the same as what they were if you go back 10 years ago, if you look at their risk-free spread above the treasury, above LIBOR, that spread has actually increased because you don't have the bank balance sheet and the commercial paper.

Joel Holsinger (13:34):

So what we're seeing is as much as the direct lending piece has been institutionalized over a longer time period, we're still early innings on the institutionalization of the alternative credit. And kind of as I said earlier, there's higher barriers to entry, right? You need to sit on a big platform. You need to be able to speak for size. You need to have the right capital raised. Think back to what I said earlier about relative value. Imagine if you did each corporate liquid or corporate direct lending and you gave a manager money and you said, "You get to invest in one industry." And if they chose retail or energy, it doesn't matter how good of an investor they are, they're going to have performed very poorly the last three or four years. So that's what happens with the niche piece. The ability to do it in size, the ability to do in scale and sit on a big platform, it's a huge advantage that you see even above and beyond some other assets classes.

Ben Gutteridge (14:24):

I'm certainly getting a, a good sense of your scale here, Joel. And that's certainly comforting. But, I mean, still a question that lingers on my mind is, I mean, the breadth of the universe that you're sort of fishing in in alternative credit is so wide, it strikes me that, you know, you might need even more people (laughs) given the resource intensive nature of it to find the opportunities, yet alone, uh, determine whether they're sort of worth investing in. I mean, I wonder, could you put my mind at even further ease, Joel, in that regard?

Joel Holsinger (14:50):

Sure. So it's a, it's an important question, and I think there's really two pieces to it. One is, uh, you know, if you were to say, "Where does our team come from?", there is common themes and common tributaries where everybody came from. We did come from, if you were to say, uh, Goldman Sachs and you were to say TIA and you were to say RBC and some of these others that had that capital, that's where most of the team came from. So we've all been doing this for 20 plus years on the, on the, over half the team and that seasoned piece, and because it has been that transformation from kind of the prop desks and the, uh, GEs and the CITs.

Joel Holsinger (15:24):

To your point on the breadth of it, you know, the thing that's interesting is the process we use, the way we structure investments, the way we look at the draconian scenarios, the way we've built in our cushions to protect our initial investment, as well as the profile of cash flows we're looking like, like, we're not doing ... As much as we say assets, we're not lending against land. We're not lending against assets that don't have contractual cash flows. It really is loans, leases and receivables.

Joel Holsinger (15:49):

So if you think of the breadth of what we do, you look at it and you say, "Wow, that looks relatively broad." I look at it and it's pattern recognition. You know, investing at its core is that pattern recognition. And so you see that same process and that same profile leads to most of these deals looking exactly the same in the way you structure them. And you'll see that come through as you look at the underlying case studies and you look at the underlying investments.

Joel Holsinger (16:14):

Another important piece to make is compare it to corporates, right? If you think of corporates, well, in the end, you invest across multiple industries, but the common structure of the EBITDA and the loan devalue and the, and the interest rate you apply and the, and the way you structure investments, they look exactly the same. I would actually argue the differences between any two industries in corporate or direct lending are dramatically more than the differences between any of the underlying sub-asset classes we play in, because at the end, they're loans, receivables and leases. And so they're very uncorrelated to what you see in corporates. They're very diversified, but the actual common themes across them are actually a lot more than what you would see across some other corporate or some other industries.

Kate Browning (16:59):

That's really interesting, Joel. Thanks for that. We've actually had a great deal of discussion recently with clients on ESG related considerations within private market alternatives, which is kind of an, an emerging series of discussions we've been having. Could you share a bit about your social impact commitment through this strategy in how you think about that?

Joel Holsinger (17:18):

Sure. So as you guys stated earlier, I Co-Head Alternative Credit. And, you know, I appreciate the platform you guys have allowed us to talk. And I really appreciate that it's a podcast so that, you know, i- if you play in alternative credit and you play in asset focused, we're dramatically better for audio than we are for video. So we appreciate that you were able to save your viewers and your listeners the pain and torture of, of seeing me on a video piece and my silver hair that all of these years of investing has created.

Joel Holsinger (17:46):

But fr- from that standpoint, you know, something within alternative credit, our flagship alternative illiquid fund, because we invest across the liquid as well as the illiquid. We truly invest across that entire scope. If you look at that, our flagship fund is called Pathfinder. Pathfinder is unique not just within Ares and not within alternative credit, but I would say it's actually unique within the entire industry. And it's something that you may have seen recently some press around. But one thing that's unique about that fund is that fund is a $3.6 billion fund. And it effectively rotates across all things alternative credit. And the promote on that fund, at least 10% of the promote, half from Ares, half from the portfolio managers, including myself, and, and Keith Ashton, who's my Co-Head, goes to global health and global education charities.

Joel Holsinger (18:36):

That was near and dear to my heart. I sit on the Board of PATH Global Health, which is one of the largest NGOs tied to vaccination programs in the third-world. Um, if you think of a lot of the work the Gates Foundation does, we're their largest single donation, about $100 million a year goes to PATH. My trips with them to India and Southeast Asia and Kenya kind of inspired the idea of combining my two favorite things, which is a global health kind of initiative on charity as well as kind of alternative credit investing.

Joel Holsinger (19:05):

And so that pledge, which we believe is the first of its kind structured to the promote, should result in, you know, up to 40 to $80 million that will go to global health and global education through Ares Foundation and through my family's foundation. So I appreciate you asking about it, because we look at it as we have an ESG policy we're very proud of and we can walk people through, but we look at that pledge as the ultimate S, you know, it's, it's the ultimate social piece from the standpoint, or SQ of the actually going and saving lives. And the work that's done in, in global health is amazing work, and we're very, very happy to support it.

Ben Gutteridge (19:40):

Well, uh-

Joel Holsinger (19:41):

And, and one thing to clarify, that will go to multiple charities, not just PATH, but PATH was just the inspiration for that pledge.

Ben Gutteridge (19:47):

Okay. Well, listen, thank you Joel. We really could keep going and going, but that's sort of a wonderfully appropriate place to wrap it up, I think. Thank you so much for being with us and sharing such great, uh, insights and with such, uh, enthusiasm too. To Kate, thank you very much for your fabulous contribution as well. I mean, to close to our listeners, if you would really like any follow-up on any of these topics raised or to discuss any area of alternative investing, please follow the appropriate links on the website, and we'll be sure to set up a meeting expediently. Uh, and also keep your eyes peeled for future recordings in our Alternative Opportunities series. But other than that, from us all, thank you so much for joining us.

Ben Gutteridge (00:00):

Hello, everyone, and a very warm welcome to another edition of the Alternative Opportunities Podcast. I'm Ben Gutteridge, an investment director within the Invesco Solutions team and co-host for this series where we'll be sharing insights from some of the most prominent figures within the world of alternative investing. And goodness me, we're doing just that today as we spend some time with Dan Pietrzak, the co-head of private credit at KKR. And together, we'll be taking a closer look at private credit, uh, specifically asset-based finance. Dan, thanks so much for joining us. Are you well?

Dan Pietrzak (00:53):

I am, Ben. Thank you so much for having me.

Ben Gutteridge (00:55):

Look, we're really grateful actually, and we, we know how busy you must be. So, thanks once again for being with us, and in just a short moment we'll begin the interview. But before that, and as regular listeners will appreciate, it's not just the quality of our guests that's helping this series to blow up on, uh, social media. It's also the magnificence of our co-host, none other than Invesco's alternative investment specialist, client liaison, and ghostbuster, Kate Browning. Kate, how are you?

Kate Browning (01:21):

Good, great. Just busting ghosts as usual, Ben (laughs).

Ben Gutteridge (01:24):

(laughs) Well, it's, uh, it's great to have you here, uh, not only to help ask some more informed questions, but also to answer a few as well. Indeed, before we return to our esteemed guest, I, I thought I might throw an opener at you, if I may. I'll tactfully avoid the issue of, uh, how haunted your new house is. Uh, instead we'll do a bit of scene setting. What can you share, Kate, about, uh, Invesco's approach to finding alternative credit partners? And without wishing to make Dan blush too much, can you offer any insight as to why we're working with KKR in the area of asset-based finance?

Kate Browning (02:01):

Sure. It's very kind of you to not belabor my (laughs) allegedly haunted, uh-

Ben Gutteridge (02:06):

(laughs).

Kate Browning (02:06):

... new home, Ben. Um, I've heard it's a very friendly ghost, so I'm not particularly worried. But, in thinking about partnerships and selecting strategies across our alternatives platform, we always focus on the same things. It's people, performance, firm, process, and opportunity set. KKR's rated really highly across all of these categories for us, particularly in their asset-based finance team. And we really like that they have a multi-asset approach that allows them to play in different areas of the market, as well as their experience in the space, their size and scale, which really, really matter on the alternative credit side, as well as some of their incumbency effects really. Their existing relationships with a number of origination platforms, kind of unique sources of deal flow across the broader KKR platform.

Ben Gutteridge (02:56):

Brilliant. Thanks, Kate. Some really thoughtful comments there and it gives us a, a great platform to begin our interrogation with Dan, who's been waiting so patiently on the line. Dan, are you, uh, are you still there?

Dan Pietrzak (03:07):

I am. I'm thinking about haunted houses and ghostbusters and what goes on in Kate's house, so...

Ben Gutteridge (03:11):

(laughs) Well, it's encouraging that you're there, but, uh... And I'm delighted you've taken such an interest. But, uh, if you can, if we could, could try to focus on your area of specialism, um-

Dan Pietrzak (03:20):

Uh, happy to, happy to.

Ben Gutteridge (03:20):

(laughs). Uh, okay. Now, I think we're after a, a mix of both education as well as your own and KKR's insights today. But we might kick off with a more broad question about KKR. Uh, you know, clearly you may repeat some of the things that, that Kate said, but keen for you to sort of stress the most important elements in, in any areas that have been missed. But, you know, clearly KKR are a, a phenomenal brand and force in the private markets arena. Wh- Wh- What advantages do you think KKR has to help bring future success to clients?

Dan Pietrzak (03:49):

Yeah. No, a- and it's... I think that's a good place to start. I think we are proud of our brand. I think it's important to us. I think Henry and George have, have done an excellent job of being focused for that over the years. I mean, this is an investment firm that's been in business more than 45 years. You know, a lot of the disciplines that was, you know, founded on the private equity side have gone into other parts of the business and, you know, including our private credit business.

Dan Pietrzak (04:09):

I think inside of, of private credit and then inside of the asset-based finance effort, you know, we've seen just an opportunity over time with, you know, regulatory changes, with human capital leaving the banks, with risk appetite sort of changing from the banks, to really sort of come in and fill that void in, you know, kind of a broad, non-bank lending space. The starting point there was direct lending for sure. You know, inside of that, I, I think Kate used these words, where kinda size and scale matter. That's been a definite advantage for us.

Dan Pietrzak (04:39):

You know, I think we've really taken a bit of that same playbook. I mean, asset-based finance is probably a bigger market than corporates. We've built out a, a large 35 person team. You know, we want to be able to, you know, get behind kinda large, thematic investment ideas. You know, so that's where not just financial capital matters, but human capital matters. And then, you know, maybe last point, I mean, just, I think, the brand of this firm allows the team to really get, you know, access to probably any meeting they want, you know, get a look at deals. Doesn't mean we always win, but I think we do win a lot of ties. Uh, and then I think our relationships with, you know, the banks who might finance us or the issuers who might buy, you know, any of the debt that we're showing out of the investments we have, I think our brand kinda matters there, and just allows this investment strategy to, I think, have a- an additional opportunity to succeed.

Ben Gutteridge (05:29):

Okay, thanks, Dan. Yeah, reinforcing what I think we can all appreciate about KKR, but also some interesting references in there about the subtleties of private credit. Already sorta talking about, uh, differences between sorta direct lending and, and some of the corporate lending in asset-based finance. I wonder if you can actually offer a bit of education for us in that regard. I mean, what, what are some of the subtle differences between these sort of subsectors, if you like? And, and could also maybe highlight some examples of investment types that, um, are a common reference to e- each type of, uh, subsector?

Dan Pietrzak (06:02):

You know, most people when they, you know, have historically heard the concept of private credit, they automatically think about sorta what we're labeling here as direct lending. So, let's just start wh- what we mean by that. You know, that is generally on a, a privately originated and privately negotiated basis, lending money to companies. We ourselves target the upper end of the middle market there, which has been companies with 50 to $100 million of EBITDA. But it is just very simply providing a loan to a company. It's usually a, a first lien or unitranche loan, but we also do have the capabilities to do second lien and/or sort of mez.

Dan Pietrzak (06:35):

So, direct lending is, you know, focused on that corporate side. Asset-based finance, which, you know, most people I think are still getting up the curve on, albeit, you know, the investor interest has been tremendously more active than it was, let's say, sort of five years ago, is more focused on portfolios of financial and hard assets. So, what are we talking about there? You know, we're talking about other forms of credit. Consumer loans, mortgage loans, you know, leasing products, being involved in portfolios of hard assets. You know, other forms of, you know, let's call it collateralized lending being invested in or lending against contractual cash flows like royalties or sort of intellectual property.

Dan Pietrzak (07:13):

So, you know, really picking up that piece of everything else that's credit, that's sorta not corporate. You know, and then inside that base you have the ability to lend against asset portfolios. You know, so it could be an LTV-based loan. You have the ability to buy asset portfolios, so you actually own, you know, the entire portfolio. Maybe you use leverage to generate some additional returns there. Or you could also be invested in or own a platform or an originator.

Dan Pietrzak (07:41):

So, all of these are tied in the same thematic of privately originated and privately negotiated transactions. I would just put that direct lending bucket in corporate asset-based finance and, and financial and hard assets. And like I said, I think for a bunch of reasons, which maybe Ben we can get into, but it's gotten a lot more interest over the last few years of people realize it's a interesting, you know, place for, you know, diversification and risk-adjusted returns.

Kate Browning (08:06):

It would be great to go into that a little bit more, Dan. I, I know for a while it seemed like private credit was all about direct lending. What's driving the evolution of these more niche private credit strategies like asset-based finance?

Dan Pietrzak (08:20):

Yeah, I think it's a couple things. One, if you think about people's direct lending allocations, they were taking capital, either from regular-way fixed income or their, you know, syndicated loan investments or their high yield allocation into direct lending. They were doing that for the illiquidity premium that it was paying. You know, the whole reason for doing private credit is just to get paid more than what you could get in, in the traded markets, 'cause you are getting illiquidity.

Dan Pietrzak (08:46):

So all that said, they were still taking the same level of corporate risk. So, I think it's been an active conversation. There's probably a little bit of investor fatigue as it relates to direct lending. Maybe they're already fully allocated there. But I think investing in these portfolios of financial or hard assets or investing in asset-based finance is a diversification play, right? The correlation is not there, it's not that crowded, there has not been a lot of, of size and scale capital raised, there's not a lot of players with large teams. Yeah, if I think you've put all that together, and then you have that continued overlay, there is a, a real hunt for yield out there. And this is an area where you can definitely get paid quite well from a return perspective versus just, you know, regular way credit markets.

Ben Gutteridge (09:32):

Okay, well, thanks, Dan. You sorta... A great, uh, sort of broad overview there. But I wonder if you could share any more detail on some of the areas you're, you know, more keen on within that. And, and also talk a little bit more about how it's sorta structured. You know, where the cash flows are coming from, and, and I guess what are some of the risks surrounding those types of investments.

Dan Pietrzak (09:50):

So, I guess, just the level set one thing. You know, we've taken a broad, sort of multi-sector approach to this, right? We both invest in and we have the team set up, you know, focused on the consumer mortgage space, focused on hard assets, focused on non-bank lending and, and SME lending, and then focus on what we call contractual cash flows. We, on purpose, want to be broad like that 'cause we wanna be able to pivot and, and find, you know, the best investing area to be behind, and if, if one gets overheated, we'll toggle to, to a different one. And we've also done that on a global basis, although that is primarily driven out of the US and Western Europe.

Dan Pietrzak (10:24):

In terms of where have we thematically been behind lately or what have we found the most interesting, for the last several years, probably almost the last five years, we've been focused on, you know, the US kinda residential real estate market. You know, a lot of that was getting behind, you know, not regular-way mortgage loans. We're not they're trying to compete with a bank who's writing a 30 year mortgage. You know, instead, you know, we were heavily invested into a single family rental platform. We've been spending a lot of time in, in the bridge lending space. You know, the, the slang name for this in the US is fix and flip loans, so, you know, capital being provided to allow people to renovate sorta houses and sell them. That's been a good tailwind for us.

Dan Pietrzak (11:05):

You know, we've always been positively disposed to the auto lending space. You know, I think one thing the financial crisis told you that, you know, people were actually paying their car loan before they were even paying their mortgage loan sometimes in, in, you know, in the United States. You know, the UK, that market's very fragmented. If we think about the overall consumer space, we probably put auto on the top of the list as... in terms of where to invest. So, I, I think those have been sorta two big thematics.

Dan Pietrzak (11:30):

And the last one would be, kinda broad stroke, I'm gonna call it leasing. We've found, you know, more and more asset classes that maybe have historically been banking products, or, or being done sort of out of banks, but for capital rules or, you know, return on capital, so the challenges... It's moved into, you know, different sort of parts of the market. So, you know, if we can get access to longer-dated cash flows that are, are committed, we still got, you know, access to the collateral, we think that up/down, you know, has been really interesting. You know, some of that's been in the aviation space. Obviously, that's been a little bit more challenging, uh, with what's going on, uh, with COVID, albeit, we've been pretty active post-COVID there. But just, you know, other forms of, of asset classes as well to sorta get the edge. Those have probably been maybe the, the three largest.

Kate Browning (12:13):

One question for you, Dan. You know, oftentimes when we're chatting with our clients, one of the questions that they have is around non-performing loans or NPLs, how you think about investing in those in this space, as well as what type of expertise you really need to really evaluate those opportunities. Can you speak a bit to that?

Dan Pietrzak (12:31):

You know, for us, our non-performing loan sorta effort has been very European focused. You know, if you go back to the financial crisis, you go back to the sovereign crisis in Europe, you know, the NPL stock on banks' balance sheets there was very high. There was a fair amount of pressure from the regulator to kinda move through that. There was a fair amount of pressure for those banks to shrink. There was a fair amount of progress made over the last, you know, several years. COVID and, you know, the related sorta pandemic challenges probably will put some pressure back on those NPL stock numbers.

Dan Pietrzak (13:01):

You know, we've been active in, in all markets. I think we've centered most of our activity though in Spain and Portugal. We've done that because we think we were a real partner to the players and the banks who were selling assets in that market, who were not in it just to be deemed a vulture investor or, or one who was bidding on everything they see. We've also... Have an ownership stake in a servicing platform there called HipoGes, which is very helpful. And I think, Kate, that goes to your expertise, to the point. Not just do we have investment professionals who've done this for a long time who are skilled at it, but we've also got control of an entity to manage the assets on a post-acquisition basis, which obviously just helps not on post-acquisition, but helps us underwrite up front. So, you know, we've had good success there. I think we expect that to continue and that activity to continue over the next handful of years.

Ben Gutteridge (13:45):

Okay, great. Thanks, Dan. I mean, from my perspective, one who's still trying to get more familiar with these types of, uh, investment opportunities, I guess sorta the first place I always go to is: could I lose my shirt in this area? But, you know, what else can you tell us? I mean, is it the case that despite the, the breadth of areas of the economy that you're covering here, that in a downturn a lot of these assets get sort of... can still get carried out or is it... Is there more specific risks? And, and what can you tell us about how you try to mitigate some of those-

Dan Pietrzak (14:13):

Yeah.

Ben Gutteridge (14:13):

... I guess, downside risks?

Dan Pietrzak (14:15):

Yeah, it is a good question. It is, it is one part of why we like this, you know, investing sector so much. So number one, I think we're trying to avoid what I'll call binary risk outcomes or things that we can't invest, right? So, you know, we're not in... You know, even if it's got some form of collateral in the, you know, energy space, commodity space, uh, we are not gonna, you know, sorta do transactions that have a stroke of pen risk or something that can... And I like that word... get you sorta carried out.

Dan Pietrzak (14:41):

You know, two, and we've done 45, 46 deals in this space, you know, over the last, you know, four and a half years. That's been almost $5 billion of capital deployed. You know, the track record has been quite good. You know, not everything we've done has, you know, worked as intended. You know, but the handful of mistakes we made on two, three deals are sorta there, but when I do look at it, you know, we're getting back 90, 95, so the 100 cents of our investment. So, I think you're starting to see that downside, you know, sorta proven out. I think what are we trying to mitigate against, I mean, you've got to be very mindful about economic cycles, right? We're probably staring at a new economic cycle that has some positive tailwind behind it right now. That said, we're probably not looking to invest into or buy large amounts of unsecured consumer loan portfolios. Even though we're pretty positive on the consumer, we want some form of collateral.

Dan Pietrzak (15:30):

You know, the other thing, a lot of these deals, the way we've invested this capital is we're... You know, we're owning the asset portfolios, but we will use the securitization markets or banks to provide us a certain amount of leverage to allow us to get to a, you know, low to mid teens type returns. It does require, I think, some experience, and having lived through a financial crisis, I mean, you need to be matched funded from a duration perspective. You need to be focused on not having things, you know, like mark to market triggers. You know, the leverage that's on any of these asset portfolios is pretty darn light. You know, it's probably all single A and, and above risks. We like the yield enhancement that it does provide. But I think, you know, all in all due to the nature of either the current cash flows that exist or the collateral that exists-

Ben Gutteridge (16:15):

Okay. Well, thanks, Dan. That's a very reassuring comments in there. Uh, we'll come back to you very shortly. I might just sorta flip to asking Kate a question at this stage. So, I guess with those sorta comments in mind, but also all the work you've done in the past, you know, as an asset allocator, I mean, how do you consider the use of asset-based finance alongside other methods of alternative investing within a multi-asset portfolio?

Kate Browning (16:37):

That's a great question, Ben. I think as a Solutions team, we often think of asset classes in terms of outcomes. And as Dan mentioned before, private credit strategies in general we think align with really an income o- objective or as a fixed-income alternative, uh, in a broader asset allocation. In this case, many of the benefits that Dan's already mentioned are really relevant here, both the benefit of a compelling risk/reward profile... I'm going to sound like a broken record here, but I, I think this is a very important diversification story. You know, these are collections of idiosyncratic opportunities that typically will have low correlations to each other as well as the broader markets.

Kate Browning (17:18):

As you know, whenever we use our vision tool and do our broader asset allocation exercises, we really, really love to see that diversification impact on the efficient frontier. Cash flow profile, again, also somewhat diversifying. And I think the opportunity set, uh, you know, that Dan spoke to previously and how that's changing and evolving, especially for platforms that can play in different areas of the market depending on relative value and supply demand. I think that would be very interesting to see play out.

Dan Pietrzak (17:46):

Just to go to your comments there, I, I think your diversification point you can almost never make enough inside of-

Kate Browning (17:53):

(laughs).

Dan Pietrzak (17:54):

... [crosstalk 00:17:54]. In- Inside of kind of private credit. And, you know, if I think about kinda broad stroke asset allocation, that private credit sorta bucket or liquid credit whatever you end up sorta wanting to call it, I think, is supposed to be a part of people's portfolios. And I think having it all corporate can provide a challenge. You know, I think adding sort of this helps. But just the way we're... kind of even run our... just the day to day business here, we have to underwrite these deals as if we're gonna own them forever. Right? We obviously risk manage them actively, but, you know, you're getting paid hundreds of basis points, you know, more because you are a provider of that illiquid credit and are gonna own it, you know, effectively, into that maturity date. But I think your biggest risk mitigant there is, is making sure that you are just diversified.

Kate Browning (18:34):

Yeah, thanks. I think that's a great point. And to kinda build on that, a lot of what we talk about is really in that corporate lending side. It's the collateral, it's real estate, it's infrastructure. So, this gives an entirely different opportunity set that you can tap into, different ranges of collateral.

Ben Gutteridge (18:53):

Well, thanks. But Dan, I might sorta close with one final question, asking you to... I mean, I can, I can sense this part of the market is quite dynamic and obviously there's more and more people getting involved here. I mean, are there any sorta new and exciting areas opening up within this area of investing? I mean, given you're sort of, I guess, at the vanguard of it. Or do actually any emerging areas do you need to see them mature before KKR might get involved?

Dan Pietrzak (19:15):

Yeah, I, I, I think it is an exciting part of the market. I, I appreciate you saying that. I'm... I, I think there's still, you know, a lot of growth that will happen with just more assets moving into this kinda non-bank lending space, so there's just some tailwind there. I do think technology will play a big role. You know, I think you're seeing easier, more dynamic, more technologically focused or, you know, slicker ways for people to access credit. You know, a lot of that has been on the consumer side to date, but I, I think that will continue and, and, you know, sorta broaden past that.

Dan Pietrzak (19:46):

I think some of that is early. We're very happy to invest with or sorta partner with some of these kinda younger lenders. But we're all about the credit risk of the loan and sometimes you need to see how that sorta gets proven out. But I, I do think when you couple that with the continued just growth of, of that non-bank lending sector, you know, in our mind, the asset-based finance faces, you know, roughly $4.9 trillion today, probably going to north of 7 trillion sorta five years from now. That gives a pretty good kinda backdrop to wanna deploy capital into.

Ben Gutteridge (20:18):

Brilliant. Okay, thanks, Dan. I mean, we really could keep going and going here, but we wanna be... Well, we are conscious of, of people's time, so we'll call it there. Thank you so much for your time. A really enjoyable interview with so many great insights. So, a big thank you from Kate and I.

Ben Gutteridge (20:30):

And Kate, to you, thanks as always for your contributions and for raising the average quality of Invesco's form today. But, uh, our biggest thanks, of course, to listeners. We hope you enjoyed that as much as we did. Should you wish to follow up with Invesco to explore how alternatives might help you meeting those financial objectives, please just follow the links on the web page. Or, you know, should you wish to engage a little more passively at this stage, uh, shouldn't have too much trouble finding other podcasts in this Alternative Opportunity series on the web page. Okay, that's definitely it. Thanks again to you all for being with us.

Ben Gutteridge (00:17):

Hello, everyone, and a very warm welcome to another edition of the Alternative Opportunities podcast series. This episode will focus upon core real estate.

Ben Gutteridge (00:27):

I'm Ben Gutteridge. I'm a director within Invesco Investment Solutions and I'll be your co-host for today's interview, alongside my harder working colleague and Alternative specialist, Kate Browning. Katie B, what's up? How are you?

Kate Browning (00:40):

Hey, Ben. Good. Not much new. How are you?

Ben Gutteridge (00:44):

I'm very well, thanks, very well. Certainly looking forward to some deep learning as you and our esteemed guest share your pearls on core real estate. In fact, we turn now to our guest, who's been waiting so patiently, Mike Bessell, Invesco's real estate investment strategist within Europe and a director of strategic analytics.

Ben Gutteridge (01:03):

Mike, I'll stick with that name for now. I don't think we're familiar enough for Mikey B, but Mike, thanks so much for being with us. How are you? And could you elaborate a little bit on that job title?

Mike Bessell (01:14):

Yeah. Thanks, Benny G. I'm good. To answer your question, I essentially wear two hats. I'm the strategist for our European real estate business in terms of helping the direct teams to understand where the market opportunities are and also in working with the funds to think through how best to convert that understanding into performance for our clients. But I also run our global strategic analytics business, which is what we have termed our real estate data scientists, essentially, trying to use increasingly alternative, nontraditional real estate context, nontraditional data to help understand the utilization of real estate and, therefore, the investment patterns that we can expect.

Ben Gutteridge (01:58):

Okay. Well, fascinating stuff and I'm sure we'll touch on some of that through today's conversation. Already great to see a bit of rapport there, Mike. So, great to have you, as I said, once again.

Ben Gutteridge (02:08):

Now I think what we really want to focus on is understanding a little bit more about what core real estate is, how it's been evolving in the face of secular trends, but also more recent events, whether it's the pandemic or higher levels of inflation. And then also, discuss how one might use the asset class in the context of a portfolio.

Ben Gutteridge (02:28):

So Mike, I turn to you to begin. And I guess at first blush, one might assume the term core real estate describes a neatly defined portion of the real estate market. But I wonder, what does the term actually mean to you? And might others in the industry interpret it slightly differently?

Mike Bessell (02:48):

Yeah, thanks. Look, I think you're highlighting quite an important point in that real estate, by definition, is a very heterogeneous asset class. No two buildings are the same, and they're all relatively illiquid. And therefore, there are a number of terms, whether it's core, grade A, prime, we have a number of loose terms that can be interpreted slightly differently.

Mike Bessell (03:09):

But for most of us, core, in the context of location, would mean a very strong central location. The sort of location where we always see robust demand for all sorts of uses generally. And so core assets, for us, certainly are those that are in those core locations, but also, they are standing assets. They typically have long leases attached to them. They're pretty prime buildings, newly built with very good tenant covenants attached. So, we're looking at the more stable, well-located, long income part of the market where demand, both from the occupational side and the investment side, is expected to be pretty robust.

Ben Gutteridge (03:54):

Okay. Well, thanks for that, Mike. I'll come back to you shortly, but Kate, might bring you in here. Just keen to know what core real estate might have in terms of additional appeal to you relative to real estate at large and its other sub-sectors? And I guess following on from that, what role does core real estate play in the context of an alternatives allocation?

Kate Browning (04:15):

Sure. And I'm one of six Ben, so I answer to anything, Kate, [Quate 00:04:18], Katie B, what have you. But I think certainly, at this point in time, using our definition of core real estate that Mike kindly broke out for us, compared to long-term historical averages, our current forward-looking return estimates for core real estate are actually very attractive at this time. In addition to offering strong returns relative to more traditional assets, we're also having a lot of conversations about the potential role of core real estate and mitigating inflation risk.

Kate Browning (04:46):

With that said, I think tying back again to Mike's comment, it's a heterogeneous asset class. So, when we think about the role of core real estate within a portfolio compared to other sub-sectors, this ultimately depends on the specific objectives of a given portfolio and investor. So for example, core real estate tends to have a more conservative risk profile and aims for stable income generation. But to the extent that there's a stronger desire for high growth paired with more risk appetite, it may make sense for an investor to also look higher up on the risk-return spectrum.

Ben Gutteridge (05:20):

Okay. Well, thanks for that, Kate. And I guess I'm sort of pressing everyone on core real estate 'cause I want to get an even deeper understanding of it, but I wonder whether we can talk about COVID and how core real estate may have changed in the face of or following on from COVID. I think maybe in the summer of 2020, our perceptions of what core real estate might be even then or in the future would be of dramatic change. And I wonder whether, actually, which of those changes have played out and which actually haven't?

Mike Bessell (05:54):

Yeah. Sure. Look, I think my summary would be that, actually, that the fundamental structural drivers didn't really change as a result of COVID, and I know for a lot of people that'll sound a bit odd, but I would break down COVID's impact into two camps. The first was certain drivers were actually, those structural, secular trends were accelerated by COVID. So, I would include in that the growth that we were already seeing in eCommerce. People who were stuck at home in lockdown were forced to shop online. And in a number, for example, of European markets where online retail take-up was far behind where it is in the US, in the UK, we've seen that acceleration and that's been in adoption and that's been relatively sticky.

Mike Bessell (06:43):

I would also put, because it's one of the big debates that has been had, I'd actually put the transformation of the office and the rethinking of the office in that camp. Because if you think about it, it's been several years pre-COVID where we didn't necessarily need to go to the office just to be sitting at a computer connected to the network. So, flexible working was already possible. What COVID did is it forced this massive experiment of working from home, and it's made people realize that kind of a hybrid work structure that many people were already moving towards is possible. And now, we've got sort of an ongoing debate around exactly what the future for offices is. But those were structural trends to say that were very clearly in place for many years pre-COVID.

Mike Bessell (07:29):

And then, we have another camp, which were those pockets of activity where there was a very clear structural trend pre-COVID, and the COVID pandemic effectively caused a short-term shock to the pattern of that trend. But actually, coming out of COVID, we've seen a relatively quick recovery and are seeing a relatively quick recovery back towards a similar trend. And on those, I would flag as examples hotel occupancy, for example, and global travel. Obviously, when we couldn't travel, hotels saw very, very weak demand and weak overnight stays. But actually, the tourism forecast numbers from most of the major surveys and what we're very visibly already seeing is a very strong rebound in people traveling again once restrictions are eased.

Mike Bessell (08:14):

And similarly, urbanization trends of young people moving into large cities was shocked around COVID and we saw are very clear, London and New York, as classic examples, saw a lot of people leaving apartments in the city center under a lockdown environment. But actually, as we've returned to work, we're back to seeing very, very strong rental growth in both of those markets and many other urban locations. And I think what you saw there was effectively, you had a number of people for whom there was a time of life decision that you were going to move out from that very urban environment at some point in the foreseeable future. Maybe you'd held on a little bit too long. Maybe you just saw it coming, so you moved out through COVID. And we didn't have the new, young entrants to the market taking that space up. But that very core residential supply, those very core hotels saw a shock to that demand, but actually have returned to the previous pattern as COVID has opened up.

Mike Bessell (09:13):

So the changes that have happened, I'd say, were more around accelerations of previous trends rather than COVID itself necessarily changing the actual outlook.

Ben Gutteridge (09:23):

Well, I mean those two sectors, you've spent a bit of time on there really in the teeth of the COVID disruption. I wonder, away from COVID entirely, whether there are some sectors or areas touching on secular trends that are entering or have entered or a growing part of the core real estate market?

Mike Bessell (09:41):

Yeah. And I think that's interesting because what we have been seeing for a few years now, gradually spilling over from the far more diversified listed real estate market is people thinking beyond just the three or four main food groups of office, retail, logistics, residential, and actually thinking about far more nuanced sectors, and also a willingness to embrace a greater degree of operational exposure and, therefore, some [inaudible 00:10:13] and move away from that long income stream that I described core real estate as having traditionally been, increasingly engaging in a much more operational level, whether it's things like self-storage, student accommodation where you've got very short term leases.

Mike Bessell (10:29):

Your student accommodation, you typically have to release your asset every year, potentially, also for the conference market over the summer or hotels where we see global differences. For example, in the US, it's typically a management arrangement. If you own a hotel, you're on full revenue risk. In Europe, we have a mix, but we have some that are a pure commercial lease. But what we do a lot of is a hybrid lease. So, we take a minimum guaranteed rent, but we also have a profit share above it. But taking that new type of revenue stream, but understanding that, actually, this is a durable income stream, even if you don't have it backed by a 10-year lease, for example. I think that is where core real estate is slightly broadening its mindset and broadening its exposure. And that's one of the key changes not driven by COVID, but that we're very definitely seeing coming through that market.

Kate Browning (11:20):

Mike, how do you see investors reacting to that change, to those trends, adjusting the income profile that you can expect from core real estate potentially and what the general response has been there?

Mike Bessell (11:33):

So I think that's a great question because it's a very nuanced answer. For most investors effectively in core real estate fund products, they're generally happy to embrace a gradually growing proportion of that exposure that are looking for, effectively are screening their managers for their ability to really manage that and get the best out of those assets. Whereas at the other extreme, we still see certain institutions, where what they're really looking for is adherence to that long-term, secure income stream that are focusing far more on and they are continuing to price chase on very long-term, stable income assets, and aren't straying so far into that slightly more operational exposure.

Mike Bessell (12:20):

So, it's a little bit horses for courses. I think everyone is getting more comfortable with it. As I say, particularly as we look at, there's a little bit more of that type of exposure in the US direct market. There's certainly a lot more of that exposure in the global REIT markets because, naturally, I think equity vehicles can better take that operational exposure in terms of their investors' understanding. So, it is slightly nuanced as to who takes it, but generally, it's a growing understanding.

Ben Gutteridge (12:47):

Mike, can I just ask about your current assessment of the role of banking within this sector? I mean, I guess, maybe your first reaction is think about the sins of the past and the extent of leverage that we might have seen within this sector. But just wondering, I don't know if you have reassuring comments about the banking sector about the opportunity and perhaps in relation to their withdrawal.

Mike Bessell (13:10):

Yeah, look. The banks themselves, and I think one slight subtlety here is, for example, European and also Asian real estate markets tend to be far more reliant on syndicated bank lending. And therefore, the controls post the global financial crisis, the controls that have come through under the various iterations of the [inaudible 00:13:31] regulations, have really pulled the banks back from higher loan to value lending or from more development exposure, and really forced them to, back to your initial question, really forced them to focus on the core assets they can really understand, that they have the data to prove that their probability of default, their loss in the event of default and various other metrics that come with it in order to give themselves the lowest possible risk capital they have to assign to that. Whereas for example, in the US, a lot more of that lending goes through the commercial mortgage-backed securities market and you get a market where the costs ebb and flow.

Mike Bessell (14:07):

But those sins of the past that you referenced, I think the real overinflation of the market that we potentially saw in certain places ahead of the global financial crisis of really chasing high loan to values, banks with significant exposure to development assets, all of that has been pulled back quite materially across all markets and provides a far greater degree of stability across the commercial real estate market, for sure. And what it does create is pockets of opportunity where the banks' restrictions pull them away from certain niche sectors, certain niche opportunities that are perhaps slightly less well understood. And it creates opportunities for specialist real estate lenders, ourselves and various others in the market have got, exploiting those opportunities to effectively to lend on the back of our real estate understanding rather than just on the back of what you can prove to the banking regulations.

Ben Gutteridge (15:04):

Thanks, Mike. If I turn to you now, Kate, and we've done a number of these podcasts and often, we're speaking to external guests, aren't we, about these various alternative asset classes, but we've invited Invesco in this time. So, I wonder if you could explain why we've thought of bringing Invesco to talk on this subject? I think perhaps Mike's silky smooth answers may speak for themselves in that regard. But what can you offer, Kate? Why have we invited Invesco in for this Q&A?

Kate Browning (15:30):

I think you're right about Mike's silky smooth answers here really speaking for themselves, but that's a great question. Through the alternative solutions platform, we partner with a network of leading alternative managers across the globe. This model allows us to leverage both the in-house Invesco team strengths as well as the strengths of external managers. We have a very strong, well-established alternatives platform within Invesco across a range of assets, including our global real estate teams, which also means that we can hound Mike more directly in the office for participation, in addition to over Teams and Skype and all those things.

Ben Gutteridge (16:07):

And back to you now, Mike. And we are keen to give these podcasts a long shelf life, but it's hard not to talk about the subject of inflation. And who knows, it could well be around for a much longer period. Indeed, the basis of the question is perhaps that inflation, we are in a higher inflation regime and despite its ebbs and flows, it might be a bigger number than it has been in the previous 10 years. What might that scenario mean for core real estate? I mean does that mean a clean [inaudible 00:16:36] of rents like positive? But then maybe on the valuation side, yields climbing in response. That's like a headwind for asset prices. Perhaps we have to dedicate a whole podcast. Unfortunately, we can't, but what neat analysis can you provide about a higher inflation regime and what it means for core real estate?

Mike Bessell (16:55):

Yeah, sure. So, look, I think historically, we've got the most granular data in the US. Historically, what has been very clear is that actually real estates has performed very well in higher inflationary environments. Now, the reason why I would caveat that slightly is that perhaps we're in a slightly different environment here because previous episodes of higher inflation have been attached to slightly higher economic growth and, therefore, kind of globally, I think the delay of the post-COVID recovery, although we had that GDP rebound, actually, the averaging through still a little bit of a concern. And if the Ukraine crisis remains prolonged, we could also end up with a shock to global growth there. So, it slightly remains to be seen what real estate in aggregate actually does in an environment where inflation is slightly decoupled from growth. But certainly historically in that inflationary environment, commercial real estate has done very well.

Mike Bessell (17:49):

Looking forwards though, I think I take a much more nuanced view. And one of the things that we have been emphasizing for some time now is to be investing in real estate on the back of secular trends and structural drivers because fundamentally, the best way to beat inflation in any environment, low inflation or high inflation, is going to be to find those opportunities where the demand for the space significantly outweighs the supply that is coming through. And, therefore, two tenants chasing one asset and hey-ho, the rent goes up.

Mike Bessell (18:24):

The second are those opportunities where the occupier is necessarily relatively price insensitive. And that doesn't mean we need to be exploitative. Things like, for example, logistics, if you look at most logistics operators, just over 50% of their costs are in their transport costs. Around about 5% of their costs are in their rent role. So, actually a better located facility is something that they can happily pay up for because it reduces their transport costs, which is a far bigger part of their overall burden. And you see a very similar pattern in thinking about, for example, e-Commerce distribution. So, understanding the individual assets, the individual sub-sectors and those locations where we can see that inflation beating performance, I think requires us to be that little bit more nuanced rather than taking a broad brush approach.

Mike Bessell (19:16):

And then we also, globally, we have to think quite differently as well. For example, continental Europe, almost all commercial real estate leases are index leased. So, even if it's not straight CPI indexation, the French market has specific indexation measures for commercial real estate, but you are essentially capturing existing leases, you are essentially capturing that inflation on the way through. And this also exists in certain other pockets of other markets around the world.

Mike Bessell (19:46):

So there are pockets where we have that direct protection, but more generally, as I say coming back to economics 101, find those opportunities where demand exceeds supply, and bearing in mind that part of that cost inflation is construction cost inflation and, therefore, actually that supply in many markets is actually reducing. Those are the instances where detailed on the ground knowledge will enable us to get ahead of those inflationary pressures.

Mike Bessell (20:12):

The second part of your question was around what happens as rates rise and what happens to real estate cap operates in that environment. We've come into, in most parts of the world, we've come into this correction as it is with real estate cap rates trading at relatively wide spreads over government bonds versus history. We're starting to see some pockets of concern where the funding, back to your question earlier on leverage, but actually where funding costs are now starting to bump up against cap rates and, therefore, more leveraged buyers potentially are slowing from the market, but generally, there remains quite a good cushion.

Mike Bessell (20:50):

And I think that the final observation on that one is in history. The cost of the debt has been not irrelevant, but less relevant than the general availability of debt. And if you chart the availability of lending to real estate assets using US data and US cap rates, what you find is that those actually track very, very closely, whereas the risk premium for the real estate cap rates vary significantly through the cycle. And if so, essentially, so long as those banking markets that we talked about earlier remain open, so long as those commercial bond markets remain liquid, then I think real estate will remain well supported, even if it's not necessarily going to see massive yield compression at this point.

Ben Gutteridge (21:31):

Well, a very neat summary there, Mike. Great job. In fact, I know you've referenced economics 101, but even then, I still find it a helpful reminder just to be told inflation, well, that's costs going up, that might discourage a bit of supply because of rather penal input costs. So, yeah, a very helpful response for me in that regard.

Ben Gutteridge (21:52):

I want us to move on to the subject of international money. Again, this is coming from a position where perhaps, I'm certainly far less informed than you, but might be of the view that international money is like a massive driver of asset prices. And in this sort of world we're in at the moment, there is going to be greater scrutiny from where international money comes. And in fact, perhaps a lot of property assets maybe have been supported by money from regimes that are now considered far less favorable, and there could be a drying up of international money flow. And, therefore, that could be something of a headwind for the property market, in core property market. How would you respond to that?

Mike Bessell (22:33):

So, I think real estate over the last 20 years, certainly the last 15 years, has become a very, very global business. The flows are very global. Yes, the assets are cemented down, but actually, the standardization globally has become a significant factor. And many of those top occupiers are global. The most highly prized logistics occupier in Europe is an online retailer that'd be very familiar to all of our US audience as well. So, those pressures are very global. The players are increasingly global. But I think in terms of flows of international money in the current environment, what I would highlight us at Invesco, the banks that are financing, anyone that's operating in the real estate world is effectively going through the same money laundering and know your customer checks as any other institutional grade asset class is going through.

Mike Bessell (23:23):

So I get where your question's coming from and the sense of some of the less desirable money that could be flowing around. But actually, what we see is individuals who may be looking to hide what we could call some sort of more dubiously gotten gains, they are very rarely looking to do that through the institutional grade commercial real estate market. That is more likely to be in a residential piece. So, what we've certainly seen in terms of responding to recent sanctions and historically as well, there's very little impact on the institutional grade real estate markets around the world. Yes, the capital flows are global, but these are big, well known, well understood players. The likes of GIC from Singapore, ADIA from Abu Dhabi, as well as big US pension funds like [inaudible 00:24:16], they are all very, very big players and they're all clearly very high quality counterparts. So, I think this commercial space is one that we remain very comfortable. This is not falling foul of some of those challenges that you alluded to.

Kate Browning (24:30):

I may jump in here, Mike, and ask you to put your other hat on for a second and give us some insights perhaps into some of the new data that's being applied within real estate and in a micro location analysis, and all these different pieces have been topics of conversation, but is there anything especially exciting there?

Mike Bessell (24:49):

And this is where as a real estate geek, I'm in a slightly different camp probably to most people, but I think all of it's very exciting because we're breaking away from just thinking about real estate as kind of rents and cap rates. You're really understanding who is using your space and why, rather than simply signing a lease and then checking that the rent's paid, provides huge opportunity to engage.

Mike Bessell (25:12):

I would come to five years ago or so, we were all both in the real estate world and the wider world, we were all looking in a combination of awe and shock at WeWork and what they were doing to the broader office market. And some of that shock factor was just, I think, a misunderstanding of what WeWork was trying to achieve. It was applying data to how office space was used. Clearly, there were some people that thought that they were pumping millions of square feet of coffee bars and high stools for people to sit on their MacBooks. But actually, the vast majority of their customer base was large institutional tenants seeking a more efficient way of using office space.

Mike Bessell (25:50):

And that application of data, how meeting rooms are being used, how to best manage flows, whether it's in the logistics space, whether it's in managing a shopping mall more efficiently, understanding the demographics that are using it, how are they using it, when are they using it, how are they flowing through the building, all of that means that we can make the most of all of these opportunities.

Mike Bessell (26:12):

And we're playing quite hard on catching this up. When we look at logistics assets, one of the first things we do is screen it for the travel time. If you think this is going to be an urban logistics opportunity, then actually, how far can a van get in in 60 minutes? If you think this is a big box distribution, find how far can a lorry get in two hours? What's the population catchment that that offers you? How well connected is it? But similarly, you reverse that same mentality for an office and you say, okay, so what would the commuter distance be? If we have to take London, for example, how far a circle do we capture if we think people might commute 45 minutes in London?

Mike Bessell (26:48):

Overlay that with a detailed population model and then, all of a sudden, we can actually, we can assess the relative strength of locations within any city to kind of see who we're capturing, which office locations work best. And combining that with amenity data, access to green space, walk scores, and other factors to say, so which of these are the locations where those tenants are going to get the staff they want? Whether staff are going to want to come into the office that's part of a vibrant environment?

Mike Bessell (27:16):

All of that becomes a hugely exciting way of thinking about real estate, but critically for us, we are already seeing those tenants thinking that way. These tools are being used by retailers to understand which malls they want to be in. These tools are similar sorts of tools and analyses are being used by office occupiers to understand where they want to be. And logistics operators and eCommerce companies definitely know exactly where they want their warehouses to be. And we've got to be keeping up to speed with that in order to, as well as to get into the most profitable opportunities, but also from a risk management perspective in order to avoid any clangers.

Ben Gutteridge (27:54):

Thanks, Mike. One final question, and perhaps an unfair one to finish, and it's asking you to do a bit of crystal balling and what sort of journey investors might expect out of core real estate? Please apply the necessary caveats that you think appropriate, but I'm thinking is this an asset class where we can think the capital values may remain quite stable? You should think about it as an income asset? Or is it something where, actually, it could be quite exciting in terms of capital performance, but therefore, might be a bit riskier in terms of volatility? Where would you position it?

Mike Bessell (28:26):

So, I certainly think core real estate by definition is supposed to be the least volatile of the real estate spaces. And I think by sticking to those strongest locations, the depth of demand remains the strongest. And I see nothing at the moment that, Kate will know this better than the rest of us, but in terms of what alternative asset classes and the alternative opportunities they're presenting, actually, that underlying income that people are looking for, that underlying income security in this case backs with reasonable levels of asset value security. These are things that I think people are struggling, many asset allocators at least are struggling to find in other sectors, which is why as we track the market indications, demand for real estate remains pretty strong or remains very strong versus history.

Mike Bessell (29:14):

Some of that is going into, for people looking for more opportunistic capital and, therefore, looking to take advantage of some of the volatility that may be there, but at the same time, as I alluded to earlier, we see some parties who continue to be not quite price insensitive buyers, but pretty strong buyers of long leased assets. This feels pretty well underpinned at this point in time.

Mike Bessell (29:37):

I think the reduction in supply that we're seeing as the shock to materials prices, shock to labor availability as well in many markets is reducing that new supply is also helping people to focus in more on what's already there in the market. ESG particularly led by Europe, but ESG considerations around real estate are also a huge part of it. And again, that core real estate that is already pretty well matched with ESG credentials, sustainability credentials gives people that comfort.

Mike Bessell (30:09):

So I think in terms of the current volatility, we may see that coming through in the development opportunities that are more value add play I would be looking at, some of the more opportunistic angles, but everything we're seeing at the moment in terms of capital demand as well as in terms of the underlying asset performance feels very much like core real estate is well underpinned at this point.

Ben Gutteridge (30:30):

Okay, brilliant. Well, thank you so much. We better call time now, I'm afraid. Heartbreaking though, that is. And so I say again, thanks so much for all those really valuable insights, Mike. Really appreciate that. And of course, thank you, Kate.

Ben Gutteridge (30:42):

Now, if the audience would like to hear more from Mike or the Invesco real estate team, please get in touch with your Invesco relationship manager or navigate your way through our respective websites. There's lots of great research and insights to learn from our real estate team, but that message also holds regarding Alternatives. If you want to hear any more on how Alternatives might help your clients reach their financial objectives, please reach out to your Invesco relationship manager again or visit the Alternatives hub on the Invesco website.

Ben Gutteridge (31:10):

But okay, that's definitely it for now. From Katie B, Mikey B and Benny G, thank you so much to you all for joining us. And we look forward to speaking to you very soon.

Ben Gutteridge (00:05):

Hello everyone and welcome to another in our series of insightful podcasts discussing alternative investment opportunities for your interest. I'm Ben Gutteridge, an investment director within the Invesco Solutions team and your co-host for today's edition in which we'll focus on real estate debt. Now, this is an asset class which, as my imminent questions will reveal, I'm unremarkably uninformed about, but one that I'm led to believe could prove extremely useful as an income diversifier. Co-hosting and restoring some credibility to the Invesco solutions team is my hardworking colleague, Kate Browning.

Ben Gutteridge (00:42):

Kate, how are you?

Kate Browning (00:43):

Doing well, Ben. Thanks. How are you?

Ben Gutteridge (00:45):

Yeah, I'm good, thank you. I'm really good. Very excited for this podcast and of course that means we still have one pretty crucial introduction to make and that, of course, as far as steamed guest and subject matter expert, Andrew Gordon, Invesco's head of European real estate debt.

Ben Gutteridge (01:01):

Andrew, thanks so much for taking the time to be with us. Are you also well?

Andrew Gordon (01:05):

I am well, Ben, thank you very much and thank you for having me.

Ben Gutteridge (01:08):

Okay. We're all fit and well then, and we can get straight into it on that basis. I think the conversation is going to attempt to cover some educational pieces on the asset class before thinking about how it might behave across the investment cycle. Obviously, lots of concerns about interest rates and inflation and then how we might consider using the asset class in the context of a portfolio. I'll ask some questions, Kate'll ask a few and I'll ask a few of Kate as well. So we turn to Andrew for the opener, pretty blunt one to kick off, and really interested in what is real estate debt in the context of this conversation and the investment mandates that you look after? Is it debt issued by real estate companies? Is it mortgages? Is it asset backed? Is it something else? What are we talking about in the main here, Andrew?

Andrew Gordon (01:54):

So just to keep it really simple, when we buy a house, we probably get a mortgage to help us finance it. When someone buys a property for commercial purposes, they will probably get a loan as to help them finance it, and that's what we're talking about in the context of real estate debt. It's loans made to finance the acquisition or the development of a property for commercial purposes.

Ben Gutteridge (02:16):

What is the journey then for you as in your Invesco, in the mandates you run, supporting that loan, buying that loan, issuing that loan?

Andrew Gordon (02:25):

So again, we try and keep life simple, so we're not really interested in buying slices of loans from investment banks or buying any sort of collateralized obligations that we are talking about, newly originated loans that we go and negotiate directly with owners of property. There's a range of route that those loans come into us. There's a big broker market, so it's a fairly well intermediated market, especially in the UK. We have fabulous contacts through our global debt resources, so through the US team, we lend to most of the biggest global investors so we have great relationships there. And then we have on the ground in Europe about 180 people working within Invesco real estate, so that's 180 people focused on real estate day in, day out in eight offices across Europe, all of them helping us look for some of the best opportunities. It's really those three routes that we find those loans. It's through the broker network, it's through the big global network of relationships, and it's through knowing the best in class local operators. We find out that someone needs a loan, we'll get in touch either directly with the borrower or via the broker, and we'll start to take a look at it and see if it's one that we want to take a look at properly.

Ben Gutteridge (03:41):

Just to get a better understanding of that loan then, is this sort of a loan to help sort of fund the development, build of a property or redevelopment and what you sort of lend the money and then get paid back or could it be extended over time?

Andrew Gordon (03:57):

Yeah, so all of the above really. The way we like to look at things is not by starting out defining that we want to be a development lender, or we want to be a mezzanine loan provider or a senior loan provider. We really start on the basis of property first. Do we like the asset? Do we think the business plan makes sense? And do we think the borrower is well placed to carry out that business plan? It's the asset, the business plan, and the borrower.

Andrew Gordon (04:26):

Once we get a tick on all of those three things, we'll then figure out what's the best part of the life cycle of the asset for us to play in. Is it development? Is it stabilization? Is it post-stabilization? And what's the best part of the debt capital structure to play in? Is it a whole loan? Is it a mezzanine loan? In terms of the life cycle of the asset and in terms of the debt capital structure, we can be very flexible and we'd expect to be well diversified over all of those things. But that for us always comes secondary to figuring out, is it an asset that we like, is it a business plan that makes sense, and is it a borrower that we think is what place to carry out that business plan?

Ben Gutteridge (05:06):

And is there anything you can tell us about on terms of that last part? Are there typical things you look for in terms of the assets, in terms of the business? Are you thinking about core real estate here or is there something a little bit more exciting in parts? Not that core real estate is an exciting of course, but ...

Andrew Gordon (05:27):

A huge wealth of things. One of the things about real estate is that it is a very, very local asset class and it's a very bespoke asset class. Drawing broad lines across we like this and we don't like that doesn't necessarily work in any particular jurisdiction, in any particular sector within that jurisdiction, there will be good deals and there will be bad deals, so we don't go headlong into any particular market and also we don't rule out going into any particular market because there are good deals and bad deals across the board. It really is about getting into the weeds of what it is that we want to underwrite and what it is we want to lend against.

Ben Gutteridge (06:08):

Are there lower quality assets that you typically avoid? Obviously are quality is a subjective term, but ...

Andrew Gordon (06:14):

Well, yes. What we're not interested in is looking at average assets with average business plans and average borrowers, and then writing a really conservative loan against it on the basis that, well, the asset's not great, but we're pretty sure the loan will perform, but that's not what we're interested in. We're very much focused on better assets and better borrowers and you referred to core assets. What we'd probably describe ourselves as is looking for assets, which are either core or core plus today or where the business plan should result in the assets being core or core plus by the end of our loan term.

Ben Gutteridge (06:56):

Okay, thanks, Andrew. Really wanting to understand some relationships now between this asset class that I've conceded I'm less familiar with and those that are considered quote, unquote "more mainstream." I know relationships that have been in the past may not be similar going forward and we want to put the necessary caveats around this, but what, in your experience in the past, has been the relationship between real estate debt and government bonds and high yield? When government bonds perform, does real estate debt perform? When high yield performs, does real estate debt perform? What relationships do you think are worth mentioning?

Andrew Gordon (07:32):

I think to a large degree, there is no strong relationship, that they're not strongly correlated. One of the features of the European real estate debt market is there is a real lack of transparency, so you don't get great data for how real estate debt has performed and how margins moved so you can't track that correlation. The movements in the real estate debt market in terms of how people underwrite different loan to value ratios and different margins is quite hard to discern and that, for me, is one of the advantages of the real estate debt market that you really can outperform based on your ability to find loans which other lenders either can't find or can't structure properly. It's that lack of transparency that really gives us the opportunity to outperform.

Ben Gutteridge (08:20):

Okay. Really emphasizes the point I made at the start, that there is the opportunity set here to diversify your return experience relative to some of those other, say, more typical bond assets. But look, I'm seeming to be dominating the airwaves or at least you and I do, Andrew. I know Kate certainly wants to ask you some questions.

Kate Browning (08:38):

Not you Ben, never. No, so one of the questions we often hear from our clients, Andrew, is around the inflation hedging qualities of rural assets. If we're in for a period of higher inflation, how would you think that this could broadly impact the asset class and the opportunity set there?

Andrew Gordon (08:57):

Yeah, absolutely. We sometimes try and characterize real estate debt is almost having a triple inflation hedge. Obviously it's secured on real estate and historically real estate has outperformed in times of inflation. In addition, the majority of our loans are floating rate loans so we charge a margin over whichever is the appropriate reference rate, either so SONIA or arrival. As and when that SONIA or arrival rate goes up in reaction to increased inflation expectations, then the total amount of interest we receive goes up in line, so our returns are inflation linked in that respect. Then thirdly, the loans we make are typically five year loans, but the weighted average life is probably somewhere between three to four years, so the portfolio as a whole churns on a three to four year basis, and in that sense gets sort of re-rated and re-remarked to market with new loans every three to four years, allowing us to reposition the portfolio secured on assets that are, if you like, re-rated at the new valuations based on any inflation that's been passed through the system.

Ben Gutteridge (10:08):

Thanks, Andrew. I know there's a bit of a danger of asking a similar question, but in an environment of higher interest rates, what price impacts are we thinking that might have on the assets and the loans that you are looking at and holding?

Andrew Gordon (10:25):

Ideally as rates are pushing outwards, not only do our returns increase because the floating rate loans are based on a margin over a reference rate that increases, but in the market, generally, we're seeing a slow upward push in margins as well. As inflation takes hold, we would expect that to be better for our returns. There are some challenges that inflation presents as you'd expect, as well as just opportunities. Whilst it does give us an opportunity to increase our returns, there are some pitfalls that we need to be aware of to ensure that happens.

Andrew Gordon (11:04):

One of the areas that we need to be particularly concerned about is development loans, where there's obviously a risk that the cost of development increases as a result of the cost of underlying materials, or even the availability of underlying materials becomes challenged so we can mitigate that by either ensuring that there's big contingencies in the development cost calculations or that there's a cost over on guarantee available to us. But on a completed loan, so an income producing asset, then the most interesting thing for us to look at is whether that increasing interest cost is going to be affordable from the borrower's perspective. That comes to whether or not the borrower is able to pass inflation linked rent increases through their asset to ensure their income goes up and then they can afford to pay the increased interest cost. That's partly a structural thing, so are we lending against assets where it's easy for the borrower to pass through rent increases from a structural basis? Something like hotels where you can change the prices overnight obviously gives you a lot more flexibility than something like an office lease that has fixed rents every five years.

Andrew Gordon (12:16):

But then fundamentally what it really comes down to is ensuring you're lending against assets, where there is sufficient demand from tenants that they will be willing to pay higher rents. Again, this comes down to the detailed underwriting of the asset. Are we lending against an asset where in an inflationary environment, you can put the rent up to enable you to afford increased interest costs and the tenants are going to be available to pay those increased rents? As I say again, it always comes down to have, we got the right asset with the right business plan, and the right borrower to ensure that it can withstand the need to increase rents over time to meet higher interest costs?

Kate Browning (12:58):

Andrew, we've talked a lot about macro risks, but are there any other key risks, thinking in particular real estate as being highly localized, that you would identify within this space or think about managing differently or avoiding entirely?

Andrew Gordon (13:17):

We don't rule anything out necessarily. I think my team and I joined Invesco 18 months ago and we moved from a place where we were the only real estate related team in that business deliberately to Invesco because we've got 180 people on the ground in Europe and over 500 globally because we wanted to be part of an organization that knew and understood real estate intricately. That really has been our main risk mitigant from our perspective, that every loan that we do, we've got local experts on the ground trawling over every aspect of the real estate to make sure that we are just lending against the right properties.

Ben Gutteridge (14:00):

Thanks, Andrew. I might give you a moment to breathe now and ask question of Kate. I should have mentioned in the introduction. Kate is our alternatives specialist within the Invesco Solutions team, so I'll be really interested to get your take, Kate, on presumably not just on the basis of what Andrew has said, but in your research in the past where real estate debt sits in the context of an alternatives allocation.

Kate Browning (14:25):

Certainly. Thanks, Ben. I think we've talked about in our prior discussions, how we typically think from an outcome standpoint within the solutions. We would certainly include this under our income oriented asset classes and thinking about fixed income alternatives within the portfolio and that being the primary objective of the asset class. However, I think it's also really interesting and timely that as Andrew has spoken to, there are the triple inflation hedge attributes, as well as in this context of rising rates, thinking about additional protections that the asset class may provide, enabling some additional resilience within the total portfolio.

Ben Gutteridge (15:11):

Okay, great. Thanks, Kate. I think we might ask one last question of our guest and really interested to know about Invesco's capabilities within this space. I would assume I'd feel pretty comfortable if it was just you, Andrew, but perhaps there is more breadth to it than that. What can you tell us about Invesco's strengths here?

Andrew Gordon (15:30):

Yeah, you clearly have far more confidence in my abilities than I do. There's eight of us in the real estate debt team in Europe, all of us based in London, and as I said, very much integrated with the other 180 people across the eight offices in Europe. We also have a very successful real estate debt business in the US led by Charlie Rose. There's 20 in their team at the moment. They've originated over $6 billion of loans and we very much benefit from working very closely, not just with the rest of the Invesco real estate guys in Europe, but also with Charlie's US team as well.

Ben Gutteridge (16:03):

Thanks, Andrew. Very nice, neat summary there, and a good place to call time. Thank you once again for being with us and sharing those really valuable insights. Thanks, of course, to Kate, our marvelous co-host, but the biggest thanks to our listeners. We really appreciate you taking the time to hear our messages. If you enjoyed this, you can find other podcasts looking at alternative opportunities within the alternatives hub on our website. For those listening in from the UK, there is an additional series available for those looking at solutions within UK DB pension schemes, some really interesting podcasts you can take a look at, as I said on that website. Also lots of real estate content being produced by Andrew's team and other real estate teams around the globe. Really we hope there's lots you can consume and enjoy, but if there isn't, if you're not satisfied by that content enough and you have other questions, please do just get in touch with your Invesco relationship manager, and we'll be sure to respond expediently to those inquiries. But other than that, just to extend one final thank you to all for listening.