Resilience, Leadership and Future-Proofing Real Assets: Moorfield Group – Charles Ferguson-Davie (CIO)
Welcome to the first instalment of our Real Estate Private Equity interview series. Amanda Floyd from Beaumont Bailey’s Investment practice speaks to leaders from across the private equity space to learn more about the importance of personal and business resilience in the face of tumultuous and unpredictable market conditions.
Throughout 2023 it has been a challenging and turbulent time for real assets investors. Overall, there has been a slowing rate of deal activity over the first 6 months of 2023 mainly because of rising inflation and interest rates affecting the sector. The uncertain future of the market has led to increased competition among managers for fundraising and ESG credentials have become a major factor of investing across multiple asset classes.
Despite the well-reported challenges, we are expecting activity to pick up towards the end of the year and into early 2024. A driver behind us releasing these interviews is to share insights from leaders who have navigated different cycles. This experience has given them the resilience and conviction to know that real estate is cyclical and the market will come back. As one of our leaders eloquently summarised: “you don’t want to sit on the side-lines and miss that opportunity to invest at or around the bottom, you need to have the bravery to invest.”
About Charles Ferguson-Davie
Charlie sits on the Main and Operational Boards as well as the Investment Committee as Chief Investment Officer at Moorfield, a leading UK-focussed real estate private equity fund manager. Charlie joined Moorfield in 2005 and is responsible for overseeing investment strategy and portfolio construction. During his tenure, he has been exposed to most of the ‘traditional’ and ‘alternative’ real estate sectors and played a leading fundraising role. Prior to joining Moorfield, Charlie worked in corporate finance at Lazard in the real estate advisory group. Whilst at Lazard he was part of a market leading team that advised several listed property companies on M&A transactions and private equity groups investing in asset-backed transactions.
Why is business resilience important? What does it mean to you? What qualities do you think embody resilience?
Resilience has become a focal point for us at Moorfield, particularly within the last 6 or 7 years due to Brexit, political upheaval, covid and more recently, higher levels of inflation and interest rates. Being a relatively small fund manager, we’ve had the room to be flexible in order to navigate our way through these challenges. What we’ve particularly benefitted from is having a good quality team who work well together, trust each other, collaborate, and share information and most importantly behave with integrity.
How do you build resilience into your team and business culture?
This is something we’ve been very focused on, and I think part of it comes down to building trust between co-workers, which can be difficult if you have people coming and going all the time, so I think having long tenure within the business really helps to build resilience. An important factor to ensure this is through the structure of financial reward and thinking beyond just salary and bonus. Implementing a long-term reward structure, such as equity awards and profit shares, can help to instil pride and a sense of ownership as well as greater alignment. I think it’s also important to create a culture of empowerment and autonomy. People feel more respected when they can get on without too much micromanagement and they have an appropriate work-life balance. I think the combination of these things is how we’ve achieved a long tenure and also attracted new joiners to the team.
Despite the well-reported challenges, where do the biggest opportunities currently lie for real estate investors?
I think investors are getting quite excited about finding opportunity through stress and distress but I’m hopeful that the economy will muddle through and there won’t be too much pain. However, I do fear that the Bank of England may go too far with rate increases. Funding costs and yields are already so much higher than we were used to for a long time and many businesses and individuals are already struggling. So, we oscillate from being optimistic about the potential opportunity to negative about the economic outlook. That being said, we still like the fundamentals of the living and storage sectors. There’s a need from customers and occupiers for the space, an acute shortage, and rents are still growing so there’s opportunity to invest there with a tailwind supporting you. If you can buy well at the right price, it should be a good time to invest over the next 12-24 months.
What are the most valuable learnings / takeaways from previous downturns. Tips and guidance to best position business to capitalise on improved market conditions and rebound strongly from a downturn?
I would say that the most important lessons we’ve learned is to use less debt, focus on the cash flows, be prepared not to invest and to sell when you have delivered your objectives. It is so important to always consider the downside, remain modest in your approach and not get carried away. You also need to consider that real estate is cyclical, things may not look that good at the moment but the market will come back, and you don’t want to miss the opportunity to invest. When it feels desperate and difficult, you also need to have the bravery to invest. We have missed out before on opportunities in the early recovery periods so we’ve also learnt not to sit too passively on the side-lines and to make sure we have capital ready and available to invest.
What key investment themes have you been focusing on in 2023 so far and as we enter the second half of 2023, where do you envisage the key areas of opportunity?
In the living sectors we’re focusing on build-to-rent, single family for rent, HMOs and PBSA and we’ll be looking to fund new build developments as well as acquire existing units. I think because of all the regulatory and tax changes, alongside higher mortgage costs, a lot of buy-to-let investors are now selling up, which is reducing supply of residential for rent at a time of very strong demand, and we believe that we can do a better job at providing an excellent customer service with consistent brand standards, whilst also improving and de-carbonising the existing residential stock. We’re also very active in self-storage, open storage and logistics, where there is also strong demand and limited supply and the opportunity to enhance performance through the use of technology and environmental improvements.
If you would like to discuss any of the topics raised in this piece or if you need support with your leadership resourcing strategy, please get in touch with Amanda Floyd on firstname.lastname@example.org.