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UBS forms $90bn private markets business

The bank plans to grow its private equity fund of funds business from $2bn to $10bn.

UBS, the Swiss bank, has rolled up its private markets businesses into one unit and laid out ambitious growth plans for its private equity fund investment business.

In response to investor demand, the firm has combined its direct real estate and infrastructure platforms, its indirect multi-manager real estate, infrastructure and private equity fund investing businesses, and its infrastructure debt offering to form Real Estate & Private Markets (REPM), Thomas Wels, who will lead the REPM business, told sister publication PERE this week.

The total assets under management for the amalgamated platform is approximately $90 billion, with the lion’s share coming from its long-established real estate business.

Wels said the greatest opportunity for AUM growth, however, comes from the firm’s private equity business, which invests institutional client capital into third party funds. Wels predicted this could grow from around $2 billion currently to as much as $10 billion in five years.

“There is a greater willingness from investors to use funds of funds for private equity than there is for real estate, so there’s real potential there to be bigger. Real estate is a $10 billion business, so there’s no reason why private equity couldn’t be a $10 billion business as well. That’s got to be the target.??”Infrastructure funds of funds are different. They are not as established, but I think being a $5 billion player should be possible.”

Meanwhile, Wels said the firm’s direct infrastructure could more than double from the $4 billion it has currently to another business of at least $10 billion AUM. “That’s possible and is supported by our current client base.” Wels joined the bank in 2005 and became head of real estate in 2012. He will oversee REPM’s staff of more than 500 across 27 countries.

“Now we have a function that represents all our products to our clients,” Wels said, adding that while UBS had close client relationships with large institutional investors, smaller investors required a “simplified” solution and “broader asset allocation advice in the illiquid space”.

“This is very much client driven,” he said.

Wels also pointed toward the launch of “crossover” products by the multi-manager part of REPM. “We’ve seen RFPs for such solutions in the illiquid space that cover real estate, private equity and infrastructure.”

He said UBS first started constructing such hybrid investment vehicles 10 years ago, but the global financial crisis saw potential investors curb their enthusiasm for such innovations. However, as investors sought to be better engaged with each of the asset classes, appetite for combined strategy products has returned, he added. “We’ll be introducing products combining asset classes in the next quarters.”

UBS is the latest large financial organisation to introduce a combined alternative assets division. In the last two years, and with a common focus on real assets, firms including asset managers BlackRock and TIAA, and investment banks JPMorgan, Deutsche Asset Management and Morgan Stanley have formed combined platforms, adding to earlier set-ups by Macquarie Bank and French insurer AXA.

The decision not to use real assets in the name for UBS’s platform was because of its inclusion of private equity, Wels said. “We had endless discussions about that. But private equity is not real assets and so that’s why our brand is broader.”