Property specialist eyes distressed opportunities

Forum Partners is rethinking its business, spurred by distressed debt opportunities in Europe and the gradual demise of the North American defined-benefit pension funds that so far have been the group's core investors.

Co-founded by managing director Russell Platt in 2002, Forum, a London-based real estate specialist, is seeking a new investor base of global pension funds and the global rich, particularly the super-wealthy in Asia.

Mr Platt says the change of investor emphasis reflects a couple of things. "The first is that the defined-benefit pension plans which have been at the heart of firms like mine are no longer growing and in some cases shrinking. Also those investors are becoming more challenging in terms of their expectations on fees and structure."

Forum, with $6bn of assets under management, charges an asset management fee of 1-1.5 per cent plus 20 per cent of profits - a cost structure that is coming under increasing pressure as institutional investors question the value such managers provide.

"There are legitimate grievances that the pension fund industry has about fee structures and we're attuned to those," says Mr Platt.

What value does Forum provide? The group is an independent global real estate investment management and corporate finance group with 60 people spread across its offices in London, the US (Santa Fe and Greenwich), Hong Kong, Tokyo, Beijing, Singapore and Mumbai.

It runs private equity funds (three investing in European property and three in Asian property). And through an affiliate, Forum Securities, it manages private investment accounts for institutions and family offices focused on global real estate securities.

Despite being a real estate investor, Forum does not buy property. "What some folks do is buy buildings. What we try to do is buy real estate operating companies," says Mr Platt.

For example, in 2009 Forum invested in the Crown group of companies, which manage more than £3.8bn in commercial and residential mortgage loans (both performing and non-performing) in the UK and Germany.

European debt is Forum's newest strategy area, and the one that has grown most rapidly. It offers huge growth potential, says Mr Platt. "Right now the elephant in the room is the European opportunity, which is enormously disproportionate to the scale of capital and expertise [that investors have so far put to work in it]."

The opportunity arises from the various problems banks face in dealing with borrowers in difficulties, says Mr Platt. Forum aims to turn a profit by "taking on responsibility for those assets and making those decisions that one should make in the clear light of day that are difficult for a bank to do in their particular situation".

Forum offers a niche proposition, he adds, so there is Space for it to operate and attract investors alongside the big names in distressed debt such as Blackstone, Apollo or Lone Star. Moreover, the group has expertise across all the components of the distressed arena: "We've got good real estate operating partners, we've got good structuring and finance skills, we've got a loan servicer."

The group is looking to work with investors as partners, an approach Mr Platt believes big pension funds will find attractive as it gives them "a lot more visibility on what they're investing in than simply getting a quarterly report from the fund manager".

Forum is used to dealing with very large investors. TIAA-Cref, the US investment fund and annuity operation, agreed to back Forum's first Asian fund launched in 2004. "We owe our existence to their early sponsorship," says Mr Platt.

It also counts the large Dutch schemes, ABP and PGGM, among its current clients, and provides "white label" property strategies for a number of large fund managers.

Forum is hoping its performance track record will help to convince potential clients who feel they do not know enough about the group.

The group's first fund, European Realty Income I, recorded an internal rate of return of 10.15 per cent a year net of fees since launch in 2003 to the end of September 2011, according to data from Forum. The IRR for the Asian Realty Income I, launched in 2004, to the same date was 11.75 per cent.

Forum's approach is often intentionally contrarian. In Asia, the company took the decision to be where its competitors were not. "We took a look at Asia and saw that most of our competitors had based themselves largely in Japan ... so we decided to plant our flag in China," Mr Platt says.

"After 2009 we thought China had come back very strongly. We thought there was a lot of liquidity around, particularly from domestic Chinese investors so we really focused much more on Japan. We spent a lot of time in 2009/2010 really going to where our competition had been."

Despite looking away from China, Forum is still invested in four companies there, but global fears about a slowdown in the Chinese property market do not bother Mr Platt.

Forum's investments are chosen after a view is taken on that individual company's ability to repay, something Mr Platt sees as secondary to the overall state of the particular market. After an investment has been made, the expertise comes in.

"We have a team in China who just go around and audit," says Mr Platt, adding that Forum's staff in China includes a former head of development for Hongkong Land as a senior adviser whose major role is to look at construction quality.

Comparing Asia with Europe, he says the yields available are considerably higher. "Where I might struggle to get a coupon of 6-10 per cent in Europe, in Asia one can routinely get a coupon of 15 per cent or in some cases even higher."

Looking to the future, Forum has no immediate plans to launch any new funds. "A fund comes with a lot of benefits," says Mr Platt, "but it comes with a lot of restrictions too." The most onerous, he adds, is the specific time window in which to make investments.

As a way around this, Forum is seeking new investment partners to form investment "clubs", with a specific focus on European distressed property assets.

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Forum Partners

Established2002 by Russell Platt, Andrew Walker and Caroline McBride

Assets under Management €6bn

Number of employees60

HeadquartersLondon, with offices in Hong Kong, Tokyo, Beijing, Seoul, Singapore, Mumbai, Greenwich and Santa Fe

OwnershipWholly owned by the partners

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Curriculum vitae: Russell Platt

Born1960

Education1982Williams College, BA in economics1986Harvard Business School, MBA

Career1982Joined Morgan Stanley

1982-1999Managing director, Morgan Stanley & Co.

1991Director, Morgan Stanley Real Estate Funds

1994Founded and managed the global real estate department of Morgan Stanley Asset Management

1999President, JER Partners - International

2001Managing director, Security Capital Research & Management

2002Chief executive officer and co-founder, Forum Partners

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