With a rise in popularity of alternative investments in recent years, UBP is tapping the private market space with a mixture of specialist in-house expertise and a highly selective approach to third-party manager solutions.
“One key factor that truly sets us apart is that we don’t develop products for specific clients or groups of clients. We design products with all clients in mind,” Michael Ostro, Head of Private Markets Group, Asia at UBP, told Asian Private Banker.
“This necessitates more, not less, selectivity. Our market approach is distinctly top-down,” he continued.
For Ostro, the pipeline size or deal flow is invariably “irrelevant”. “We don’t rely on incoming deals. Instead, we actively seek out opportunities. The guiding mantra of the team is: if it’s worthwhile, you have to fight for it,” he explained.
UBP’s private markets group is a dedicated unit of the bank that offers its private banking clients in-house private market capabilities.
Investing for the long term
UBP’s Private Markets Group’s investment team will start with areas of the market that they believe will have secular sectoral tailwinds over the next few decades.
“We have a substantial business in government-leased real estate, which is a subset of commercial real estate. For several reasons, this real estate niche is less risky but also offers a higher rate of return than core commercial real estate.”
UBP has been offering its in-house fund purely focused on European government real estate, with long-term leases to AAA or AA+-rated Western European governments.
“This provides an almost-fixed-income proxy with the same credit rating as a government bond, but with a substantially higher yield.”
The Swiss pure-play is also closely examining the deployment of new capital to the areas where it sees long-term opportunities: data infrastructure and European hospitality.
We need more data storage capacity and infrastructure to support the higher energy-intensive activities of the data market, namely, generative AI. Data infrastructure includes data centres, telecommunication towers, and dark fibre. In my opinion, these are the right ways to invest the data consumption trend for the long term, rather than getting caught up in the short-term hype.
On European hospitality, Ostro said Europe is a strong market for hospitality. The institutionalisation of European hotel stock presents a very strong long-term tailwind, Ostro added, making it one area where the bank is looking to make allocations.
“For hospitality, we have a substantial in-house real estate team with the expertise to handle it internally. However, for the data play, we will rely on third-party managers.”
Manager selection
Ostro acknowledged that some alternatives managers may have more expertise in certain strategies.
“If we decide to partner with a third-party manager, extensive due diligence is crucial to understand the players, their strategies, and their track records,” he explained.
Especially for new managers that are less well known compared with big private equity firms, UBP drills down into the manager’s investment team, liquidity management and track record.
Ostro also mentioned that some niche market-focused managers outperform typical private equity returns.
“We seek out performance compared with a typical private equity return, which means investing in dedicated managers who focus on certain strategies and themes. Large alternative asset managers are not able to achieve that sort of tactical focus as well as their smaller peers.”
