Our Private
Markets
Capabilities
January 2017
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Our commitment to
private markets
“Standard Life Investments has a long
history of managing private markets assets.
We have been active investors in the global
real estate market for over 50 years and
private equity markets for over 40 years. We
also have significant experience in managing
infrastructure assets and established private
credit capabilities. Given this heritage, we
can offer investors access to an impressive
range of private markets capabilities, all
backed by long-term investment strategies
and experienced investment teams.”
Peter McKellar
Head of Private Markets Solutions
Standard Life Investments
Introducing
ourLife
private
About
Standard
Investments
market capabilities
Standard Life Investments is a leading asset manager with
an expanding global reach. Our wide range of investment
solutions is backed by our distinctive investment philosophy,
disciplined risk management and shared commitment to a
culture of investment excellence.
As active managers, we place significant
emphasis on rigorous research and a
strong collaborative ethos. We
constantly think ahead and strive to
anticipate change before it happens,
ensuring that our clients can look to the
future with confidence.
Standard Life Investments manages
£269.0 billion* on behalf of clients
worldwide. Our investment capabilities
span equities, fixed income, real estate,
private equity, infrastructure, multi-asset
solutions, fund-of-funds, absolute return
strategies and liability-driven investments.
Headquartered in Edinburgh, Standard
Life Investments employs more than
1,700 talented individuals. We maintain
a presence in over 20 locations across
Europe, North America, Asia and
Australia. In addition, we have
close relationships with leading domestic
asset managers in Asia, including HDFC
Asset Management in India and
Sumitomo Mitsui Trust Bank in Japan.
*US$359.6 billion, €323.6 billion, AUD$483.0 billion,
CAD$467.1 billion, exchange rates used are US dollar =
1.336800, euro = 1.203295, Australian dollar = 1.795327,
Canadian dollar = 1.736102, as at 30 June 2016
Contents
2 Our commitment to
private markets
10 Our expertise in
private markets
4 Introducing private markets
12 Full range of resources
6 The evolution of
private markets
14 Summary of benefits
7 Compelling investment
advantages
15 Contact details
Introducing private markets
Private markets are proving increasingly popular among investors seeking
a return in a world of low interest rates and volatile financial markets. In total,
private markets account for 7.5% of global assets under management. This
figure is set to grow by 5% per year over the next 2-3 years¹. At Standard Life
Investments, we offer investors extensive access to this rich and diverse asset
mix. With assets in private markets solutions worth circa £25 billion², we are one
of the top 40 private markets managers globally³.
Diverse range of investment opportunities
Private markets assets are investments not traded on a public exchange or market. As such, some
investors have previously viewed them with caution because of a lack of familiarity and perceived
challenges around transparency and liquidity. However, private markets have evolved significantly
over recent years and now encompass a wide variety of investment opportunities, many of which are
familiar and linked to our everyday lives.
¬ Real estate – commercial real estate investments, such as offices, retail (e.g. shopping centres and retail parks) and industrial (e.g. distribution warehouses) buildings
¬Private equity – companies not quoted on a stock exchange, e.g. Pret A Manger, Tommy Hilfiger,
or Formula One
¬ Infrastructure – significant infrastructure projects, such as roads, rail, bridges, power and
water facilities
In addition, private credit underpins all of these investment opportunities as it provides a key source
of financing.
Common investment benefits
While private markets opportunities are diverse, they can provide common benefits for investors.
These include:
¬a possible source of sustainable performance
¬potential for higher returns than investing through public markets
¬a higher yield from certain private markets assets (in return for potentially less liquidity)
¬increased portfolio diversification
¬low correlation with other core asset classes, such as equities and bonds.
Important risk warning
Direct investment in private markets can expose investors to highly illiquid assets that may take
considerable time to buy and sell. Investors should be aware that they might not have immediate
access to the value of their investment.
¹Source: McKinsey Global Wealth & Asset Management Practice,
‘The Trillion Dollar Convergence’, August 2014
²Source: Standard Life Investments, as at 25 January 2016
³ Source: Towers Watson Alternative Manager Survey 2014
4
Our Private Market Capabilities
“Investing in commercial
real estate across the
globe requires experience,
specialist knowledge
and shrewd judgement
– exactly the critical
combination we offer.”
David Paine
Head of Real Estate Investment
Standard Life Investments
The evolution of private markets
Private markets have evolved significantly over recent years and many
investors now make an active allocation to them within their broader portfolio.
They understand the increasingly diverse range of opportunities available
from private markets and the many benefits these can bring in meeting
longer-term investment objectives.
Thirty years ago private markets were still largely evolving, dominated by private equity funds with
some opportunities in real estate and private credit. At this time, many investors were often unwilling
to invest because they were concerned about liquidity, transparency and the length of time their cash
could be tied up for.
More recently, however, a number of factors have combined to change investors’ views:
¬
¬
¬
¬
the impact of market volatility on traditional asset classes
a greater focus on more outcome-oriented solutions in a low return environment
a desire to build bespoke solutions to fill asset class gaps and meet return expectations
the ability of asset managers to offer a broader suite of listed and unlisted private
markets solutions.
In addition, private markets themselves have changed dramatically and now include a much wider
range of investment opportunities.
Real Estate
Private Equity
Infrastructure
Private Credit
These opportunities can provide significant benefits in a low growth, low-income investment
landscape. As a result, increasing numbers of investors are changing their allocations. For example,
we surveyed European insurers, mainly chief investment officers, on their investment intentions. We
found that over 60% expect to increase allocations to real estate and other private markets assets, as
they expand traditional investment horizons in an effort to maximise returns. Therefore, we believe
the recent growth in private markets is set to continue, as more investors turn to the asset class to
support their long-term investment requirements.
6
Our Private Market Capabilities
Compelling investment advantages
Whether considered individually or in combination, private markets assets can
play an important role in helping investors achieve their longer-term investment
objectives. Listed below are three key reasons why we believe investors should
consider making an allocation to private markets. In our view, it is possible to
unlock significant value by looking beyond short-term performance and taking a
more strategic perspective.
1. Potential for increased portfolio returns
Perhaps one of the biggest attractions of private markets is their function as a potential source of
sustainable total returns. This is particularly pertinent in the current world of low growth and meagre
yield from many traditional asset classes. By contrast, private markets assets can offer an attractive
illiquidity premium (a higher yield for potentially less liquidity). The table below shows examples of
the level of potential premium investors could expect from various private markets assets.
Illiquidity premium
Type
Spread
Reference Rate
Commercial Real Estate Debt
190bps
5-year Gilts
Infrastructure Debt
200bps
15-year Gilts
Direct Real Estate
250bps
10-year Bunds
Private Equity
300bps
MSCI Europe
Source: Standard Life Investments, 30 June 2016
Given the illiquidity premium for investing in private markets, there is the potential for enhanced returns
as part of a wider investment portfolio. Indeed, our analysis shows a portfolio with a 5% allocation to
private markets delivering a long-term return of just over 3%. By then increasing the weighting in private
markets to 28%, the long-term portfolio return could increase to 5%.
Increased portfolio return
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
5% SAA to
Private Markets
Traditional Portfolio
28% SAA to
Private Markets
Unconstrained Portfolio
Source: Standard Life Investments, 30 June 2016
As a result, investors, from large pension funds to private wealth clients, can look towards private
markets solutions to help them meet future liabilities or funding requirements. They can use various
private markets assets, offering a mixture of income and growth, to build a bespoke solution that helps
meet their particular investment goals.
Our Private Market Capabilities
7
2. Increased portfolio diversification
Alongside the potential for better returns, an allocation to private markets can improve portfolio
diversification. Spreading investment across public and private markets can maximise the potential
for returns while also spreading risk. As the chart below demonstrates, this can make for a
more efficient portfolio that offers better returns for a similar level of risk.
Portfolio diversification
Embedded Value
Risk Appetite
Portfolio
optimised with
constraints
Efficient Frontier
including Private Markets
excluding Private Markets
Objectives/
Constraints
Economic Capital
Source: Standard Life Investments, EY – Strategic Asset Allocation for Life Insurers
3. Low correlation with other assets
One of the advantages an allocation to private markets adds to a portfolio is their low correlation with
other asset classes. This is particularly important in an environment where the performance and value
of traditional asset classes, such as equities and bonds, come under pressure.
Here, private markets assets should retain their ability to deliver benefits for investors through a
potential smoothing effect on total portfolio volatility and support the delivery of more sustainable
returns over the long term.
8
Our Private Market Capabilities
“Leveraging our extensive
knowledge and close industry
relationships, we seek to
uncover profitable investment
opportunities for our clients.”
Dominic Helmsley
Head of Infrastructure Equity
SL Capital Partners
Our Private Market Capabilities
9
Our expertise in private markets
Standard Life Investments has a long track record in private markets, from
our first real estate investment through to private equity and, more recently,
infrastructure and private credit. We have built significant capabilities over the
years to become one of Europe’s leading private markets managers. Bringing
our experience to bear, we can provide individual strategies or blended
solutions that help investors meet their long-term return requirements.
The chart below shows the full range of private markets opportunities and resource that
we can offer to investors.
Real Estate
Private Equity and Infrastructure
Private Credit
£18.3 billion
£5.1 billion
£2.4 billion
Team of 104
Team of 60
Team of 13*
Strategies
¬ Sustainable income
¬ Private equity primaries, ¬ Core to value added
¬ Listed real estate
investments
¬ Real estate lending
¬ Direct infrastructure
secondaries and co-
and secondaries
¬ Private placements
¬ Infrastructure debt
¬ Asset-backed securities
¬ Commercial real estate lending
¬ Junior corporate debt
¬ Strategic credit
Capabilities
UK/Europe/Asia
Global listed
All commercial sectors
Diverse client solutions
UK
UK
Europe
Europe
US (private equity)
US (via private placement)
Global (via strategic credit)
Source: Standard Life Investments, as at 31 December 2015. *Embedded across all private markets teams.
10 Our Private Market Capabilities
“Our success is based
on a close knit
team of investment
experts with strong
leadership, harnessed
by a distinctive
investment process.”
Craig MacDonald
Head of Credit and Aggregate Bonds
Standard Life Investments
Our Private Market Capabilities
11
Full range of resources
Real estate
Private equity
Significant real estate capacity – we rank in the
top 20 largest direct real estate managers in
the world¹, managing real estate assets worth
£18.3 billion2. In total, we have more than 650
properties under management across 16
countries. We also have real estate operations
in six key locations globally, giving us vital local
market knowledge and access to some of the
best investment opportunities.
Experts in private equity – SL Capital Partners,
which is owned by Standard Life Investments, is
a leading private markets investor and provides a
range of private equity, infrastructure equity and
private credit investment capabilities, focusing
on Europe, as well as private equity investment in
North America. It is one of the largest European
private equity and infrastructure managers, with
assets under management worth £5.1 billion³.
Breadth of capability – we can offer a variety
of real estate entry points for private markets
investors. These include investing in the real
estate market directly or on a co-investment
basis. We can also provide access to real estate
via the secondary market (the buying and
selling of pre-existing investor commitments).
Finally, we manage a range of real estate funds,
including direct and listed strategies, as well as
hybrid portfolios, that invest in single
markets, regions or globally.
Broad product range – SL Capital Partners
has well-established experience across all
aspects of private equity investment, including
co-investment (over 60 co-investment deals
concluded since 1998 with a value in excess of
€1 billion) and a strong secondaries capability.
The team manages commitments to more than
120 private equity partnerships on a primary and
secondary basis, serving on almost 100 fund
advisory boards.
Real estate lending expertise – we have invested
in the commercial real estate lending market
since 2014, seeking to provide investors with
attractive risk-adjusted returns and strong yields.
To achieve this, we have built a four-strong real
estate debt team with an average of 22 years’
industry experience. The team was involved in
real estate lending worth £580 million during
2015/2016.
Considerable industry experience – in offering
these solutions, SL Capital Partners operates
a ‘one team’ approach. Its large private equity
team boasts combined experience of over
200 years and a distinguished long-term track
record. One of its key strengths is its direct
deal experience, which provides insight into
the strategies, processes and disciplines of the
funds and deals in which it invests.
¹Source: Towers Watson Global Alternatives Survey 2015
²Source: Standard Life Investments, as at 31 December 2015. Gross real estate assets under management, includes cash and holdings in real estate held in
other asset classes.
³Source: Standard Life Investments, as at 31 December 2015
12 Our Private Market Capabilities
Infrastructure
Private credit
Infrastructure assets – investing in infrastructure
equity can provide attractive long-term returns
given their importance in a functioning society. SL
Capital Partners has an experienced infrastructure
equity team that also benefits from Standard Life
Investments’ institutional heritage.
Dedicated to private credit – we increased our
capabilities and expertise in managing private
credit mandates following our acquisition of Ignis
Asset Management in 2014. Building on a strong
heritage in fixed income and credit investing,
we are able to originate a broad range of private
credit assets. These include private placements,
infrastructure loans, real estate loans and
junior corporate debt.
Focused investment strategy – SL Capital
Partners targets long-term direct investment in
core infrastructure assets in the UK and Europe.
The focus is on delivering an attractive current
yield, as well as capital growth, from lowrisk infrastructure assets. SL Capital Partners
also invests in attractive European-focused
infrastructure secondary transactions.
Project examples – examples of projects
completed recently include the acquisition of 13
hydroelectric plants in Norway, which can produce
enough power for around 30,000 homes. Another
recently completed project involved financing new
rolling stock for the Great Northern Train Link in
the UK that services around 23,500 customers
per day.
Focus on quality – in managing private credit
mandates, the team focuses on good quality,
senior and junior mid-market corporate
debt. It also seeks to identify strategic credit
opportunities.
Infrastructure debt opportunities – as banks
step back from financing long-term infrastructure
projects, this creates a range of opportunities
for investors. To take advantage of these
opportunities, Standard Life Investments has
built a dedicated infrastructure debt team, which
has a breadth of industry experience.
Our Private Market Capabilities
13
Summary of benefits
We believe that investing in private markets through Standard Life
Investments brings a number of benefits.
¬ Private markets have evolved significantly
over the years and we can provide investors
with a diverse range of opportunities across
real estate, private equity, infrastructure and
private credit.
¬ This expertise includes a track record of more
than 50 years in real estate and more
than 40 years in private equity. We also have
dedicated and growing infrastructure and
private credit teams.
¬ Advantages of an allocation to private markets
include the potential for increased portfolio
returns, sustainable income streams and
more effective portfolio diversification. Private
markets can also help investors improve their
ability to meet future funding requirements.
¬ We focus on delivering the best outcomes
for private markets investors, whether
through individual strategies or blended
solutions, aimed at meeting their longer-term
return requirements.
¬ Standard Life Investments and SL Capital
Partners have extensive expertise and through
successful collaboration now rank in the top40 private markets managers globally.
14 Our Private Market Capabilities
Contact details
For further information on our private markets capabilities, please visit
www.standardlifeinvestments.com or contact one of the following people.
Nalaka De Silva
Private Markets Investment Specialist
Tel: 0131 245 4358
Email: [email protected]
Mark Meiklejon
Investment Director, Real Estate
Tel: 0131 245 0962
Email: [email protected]
Stewart Hay
Head of Institutional Client Solutions
Tel: 0131 245 1467
Email: [email protected]
Alan Coffey
Investment Director, Private Equity
Tel: 0131 245 8359
Email: [email protected]
Roger Pim
Deputy Head of SL Capital Partners
Tel: 0131 245 9301
Email: [email protected]
Our Private Market Capabilities
15
Important Information
All information, opinions and estimates in this document are those of Standard Life Investments, and
constitute our best judgement as of the date indicated.
This material is for informational purposes only and does not constitute an offer to sell, or solicitation
of an offer to purchase any security, nor does it constitute investment advice or an endorsement with
respect to any investment vehicle. This material serves to provide general information and is not
meant to be legal or tax advice for any particular investor, which can only be provided by qualified tax
and legal counsel.
Prospective investors should ensure that they: (1) understand the nature of the investment and the
extent of their exposure to risk; (2) have sufficient knowledge, experience and access to professional
advisors to make their own legal, tax, accounting, and financial evaluation of the merits and risks of
participating in an investment in the strategy; and (3) consider the suitability of investing in light of
their own circumstances and financial condition.
Many factors affect performance including changes in market conditions and interest rates and
other economic, political, or financial developments. Investment return and principal value of your
investment will fluctuate, so that when your investment is sold, the amount you receive could be
less than you originally invested. Past performance is not a guide to or indicitive of future results.
No investment strategy or risk management technique can guarantee return or eliminate risk in any
market environment.
Standard Life Investments is engaged in a joint venture with HDFC Asset Management. Standard Life
Investments is engaged in a strategic alliance with Sumitomo Mitsui Trust Bank. SL Capital Partners
(US) Ltd is a subsidiary of Standard Life Investments. Standard Life Investments owns 60%.
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