ASIAVIEW: As good as it gets

Why the agreement between Bank of America Merrill Lynch and Blackstone to merge its Asia operations is the best outcome for the bank’s LPs. PERE magazine September 2010 issue

It is easy to see the benefits for The Blackstone Group of merging Bank of America Merrill Lynch’s principal real estate investment team in Asia with its own nascent regional business.

The private equity and real estate giant is more than established in the US and Europe where the vast majority of its $24 billion of property under management sits. But having established its first offices in Asia only in the last couple of years, and with just 15 of its 75-staff strong real estate team resident in the region, exposure to Asia’s growth engine has been limited.

The capture of BoAML’s 50-strong team, led regionally by Martin Seol, would certainly go some way to addressing that.

Furthermore, the agreement between the two organisations, made in July and expected to be formalised this month, provides Blackstone with access to the asset management of more than $8 billion of real estate assets across BoAML’s $2.65 billion Asia Real Estate Opportunities Fund and its balance sheet. More importantly, it also provides an opportunity to impress dozens of new LPs that could be added to Blackstone’s own stable of investors in the future. Its growth in a region, where it has no legacy issues, could therefore be exponential.

From the LP perspective, the human capital transfer between BoAML and Blackstone should be regarded a positive. That’s not to guarantee there won’t be challenges down the line, but for now this is as good it gets.


In the formative years of the tie-up there should be few issues. What is essentially an outsourcing transaction should be welcomed by BoAML limited partners as it offers the asset managerial continuity other investment bank-owned private equity real estate platforms are arguably in the throws of losing.

Look at the Asia component of Apollo Global Management’s imminent takeover of Citi Property Investors, for example. There, the $1.29 billion CPI Capital Partners Asia Fund is to be led by its third Asia head in less than two years following the departures of David Schaefer in 2009 and his replacement Ravi Hansoty, who is set to leave the firm when the merger closes this month.

For all the virtues of ex-Colony Capital Asia head and the man leading Apollo Global’s charge in the region, Grant Kelley, he will still be starting from relative scratch familiarising himself with the platform.

Furthermore, Kelley will have to do so without many of CPI’s lieutenants. As well as Schaefer and Hansoty, CPI’s head of China Wendy Yao, chief financial officer Marco Ho and investment director Pius Ho have also departed the firm following the merger with Apollo.

Blackstone will merge with BoAML’s staff but, it is understood that, due to a desire not to assume the bank’s general partner liabilities, the GP function and fund manager functions are to remain with BoAML.

According to one source, such attrition is a key concern for the LPs of BoAML. It is understood approximately 10 staff have handed in their resignations since BoA elected to move out of the business about 18 months ago and it would be a hard pill for LPs to swallow to endure many more. Luckily the prospect of a career at Blackstone is appealing to most professionals in private equity real estate.

More likely an outcome is that Blackstone, led in Asia by Alan Miyasaki in Japan and Chris Heady in Hong Kong, won’t retain all 50 BoAML staffers long term. That itself could be a silver lining for the LPs as employees compete to outperform in a bid to prove their worth to a new employer with billions of dollars in dry powder from which to earn carried interest and other bounties. Another person familiar with the matter suggested Blackstone ideally wants to maintain a real estate platform of 100 staff equally split across the US, Europe and Asia. The maths alone suggests a fall-out of some kind.

The key for the LPs, who are understood not to have had an official say in the agreement between Blackstone and BoAML, but were consulted by the bank prior to the decision, is that the personnel integration results in the perfect blend of Merrill Lynch’s regional experience – some staff have been active in Asia real estate for 20 years plus – and Blackstone’s trademark youthful flair and execution capabilities.

One small possible point of contention is the notion of decision making capabilities. Blackstone will merge with BoAML’s staff but, it is understood that, due to a desire not to assume the bank’s general partner liabilities, the GP function and fund manager functions are to remain with BoAML. Come the fund’s wind-up time, will the GP be aligned in with its former staff or indeed their new employer?

The likelihood is that it will, but that’s no certainty. Then again, in real estate, or life for that matter, what is? For now this tie-up looks like it will suit all parties.