Isabelle Scemama looks forward to higher standards for real estate.
In April, Isabelle Scemama, Head of Funds Group and Management Board member at AXA IM - Real Assets, was appointed to the INREV Management Board. In a candid conversation with IQ, she shared her thoughts on future challenges for the real estate industry. Transparency loomed large as did the need to redress the gender and age imbalance.
Isabelle Scemama is clearly passionate about the real estate industry and cares deeply about the way in which it continues to evolve and grow. Her emphasis is firmly on finding ways to improve it – something she believes is both a collective and an individual responsibility.
There is a strong inference that every market participant has a role to play, but also recognition that some should expect to shoulder a greater share of the burden than others. Isabelle references AXA IM - Real Assets in this context: ‘As one of the leading real estate portfolio and asset managers worldwide, we have to contribute to the industry effort to become more transparent and more efficient and INREV is the best forum for that.’
It is, she says, why she took the decision that AXA IM - Real Assets should play a more active role within INREV. She believes that, through initiatives such as the Guidelines, the DDQ and the NAV calculations, the association has achieved a lot in terms of creating a more standardised and transparent industry. But she adds that there’s more to do, because ‘what’s definitely critical in this industry is to improve its professionalism and transparency in order to make it more understandable by the market and by investors.’
Isabelle singles out the need for better and more consistent benchmarking; as well as continued efforts to improve fund structuring. The latter point is important because it will help in developing more flexible vehicles that better meet the needs of investors.
So far as the specific contribution that AXA IM - Real Assets can make in this regard, Isabelle highlights her firm’s experience with instruments such as ELTIFs. ‘This could be an interesting vehicle for real estate but we still need some harmonisation,’ she explains. She references the ongoing tax issues and then neatly introduces the topic of regulation.
In her view, both AIFMD and Solvency II are helpful enablers for establishing a ‘global and common framework’ for the whole of Europe. Both are being progressively recognised as useful labels by investors and fund managers. They remove the need for individual country codes because all market participants now have a shared understanding, regardless of jurisdiction.
It’s far easier for us to manage products that will work and will be viewed under the same framework by a German insurance company or by a UK pension fund. I think Solvency II and AIFMD are positive for the industry, but they require us to be able to adapt. They also require more risk management and compliance,’ she says.
But she also acknowledges that new rules will put pressure on some market participants. For the smaller fund managers, in particular, the increased administrative burden and attendant rise in costs will be significant.
BIG IS BEAUTIFUL
This is likely to be a contributory factor in the continuing trend for industry consolidation – though definitely not the only one.
Real estate, says Isabelle, needs scale because of the lumpy nature of the assets and because, as an essentially local business, it requires the capability to deploy people on the ground and to implement efficient operational platforms. Being part of a worldwide leader in insurance is a ‘win / win’, she says, because it provides AXA IM - Real Assets’ clients with the comfort of knowing they can rely on efficient systems, and that there’s alignment of interest.
what’s critical in this industry is to improve its professionalism and transparency in order to make it more understandable by the market and by investors.
There is also the benefit of having a broader view of the total investment landscape. And when you are able to bring together size, experience and an agile operating structure, you can provide a holistic approach to real assets investment. ‘At AXA IM – Real Assets, we are able to offer to our clients a 360° view of real assets through a single investment platform, investing in both equity and debt, across different real asset classes, geographies and sectors, and via private and listed instruments. It’s a way to have greater agility through the market cycle and to adjust capital allocations from one instrument to another.’
This approach goes beyond ‘just being better in your underwriting and your risk/return assessment’. The big challenge with real estate is always the trade-off between liquidity and volatility. Isabelle champions the virtue of being able to manage this trade-off more efficiently: ‘The capacity to consider all instruments and to move up and down the capital structure – to do debt and equities and to do public and private – means you can combine different instruments in one vehicle and adjust your allocation in order to offer more or less liquidity and play with the volatility. It’s a way to improve your capacity to hedge your exposure, which is never easy when you’re only dealing with direct real estate. It’s also a way to be better – to address structural changes in the industry and design products that investors want.’
On the subject of hot products, Isabelle also raises debt, which is both an important part of the AXA IM - Real Assets’ offering and, she believes, now firmly established as part of the broad product mix within real estate generally. In her view, banks have regained their appetite for debt and this makes the market more competitive. But, in the long run, banks and insurance companies will still have to navigate new regulatory imperatives forcing them to be more selective in their lending capacity. This leaves plenty of room for real estate market participants – especially those with specialist expertise in delivering debt platforms.
‘I’m not convinced that the CMBS market in Europe will be what it is in the US. But regarding the switch from banks to insurance companies and from banks to institutional investors, I’m convinced it’s a growing trend,’ she says.
STRIKING THE RIGHT BALANCE
Aside from market dynamics, there’s one other pressing subject Isabelle is keen to address. As a woman and as a leading figure in the industry, Isabelle feels strongly that greater efforts need to be made to correct the persistent gender and age imbalances that exist. She acknowledges positive examples of progress, such as the almost 50:50 gender split on the AXA IM - Real Assets Board and her presence alongside that of Marieke van Kamp, Head of Real Estate & Alternatives at NN Group, on the INREV Management Board. But, she says, it’s still a heavily male-dominated world and one that needs further change in order to better reflect contemporary reality.
Typically, Isabelle sees this as a question of leadership, but also one of individual and collective responsibility: ‘It’s definitely a challenge but we all have to encourage diversity in the industry. At AXA IM - Real Assets we have done a lot regarding recruitment of young people. It’s quite a good example. I hope that others will follow.’