Real estate and the UK life sciences sector
Pardon the Interruption
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Pension fund trustees and their asset managers as ever are facing tough times. It doesn’t help when the Prudential Regulation Authority warns them against buy-outs and The Pensions Regulator encourages them to de-risk as soon as possible.
And of course, the last year or so has been challenging for investments. So faced with chunky losses on fixed income, technology stocks falling out of bed and Private Equity options being illiquid and difficult to value, trustees could be forgiven for examining some alternatives.
Given the collapse in tech stocks and a similar fall in property investments, one could understand if trustees took a jaundiced view when faced with an investment that combines them both. At a recent mallowstreet University dinner, UBS-Asset Management (UBS-AM) offered an investment option over which in theory trustees should have shaken a mournful head.
But the presentation, immaculately conducted by Olivia Drew, the UBS-AM Portfolio Manager of the UK Life Sciences Property Unit Trust, suggested that the life sciences sector (a different kind of tech) coupled with purpose-built property filled with lab space and good manufacturing practice units (GMP) should be worth a thoughtful look.
We were introduced to the idea that investing in buildings, some in city centres, some in science parks, some with short leases, others with extended contracts, might give us a return of around 15%, which even with raised fixed-income rates looked compelling. Olivia deftly dealt with some of our more sceptical views, ranging from the availability of similar opportunities in the US, to restricting the portfolio to the Golden Triangle, a novel concept for many of us. This simply describes the geographical diagram between Oxford, Cambridge and London, which seems to be where the biotechs prefer to congregate, even though they could enjoy the fruits of Wolverhampton or Middlesborough. UBS-AM, unlike many if not most investors, take on the risks of planning permissions (zoning), construction and letting, with results that seem immensely attractive. Much depends, as ever, on the particular skills of the manager, but UBS-AM seemed big enough and tough enough to manage the process with some panache as some of our more expert guests appreciated. And it helps to be hands on – Olivia had just returned from some site visits.
Quite where to put the investment into the various buckets that regulators seem to insist on imposing seems uncertain. It’s not fixed income, and it’s not an equity, and it might not be as liquid as some might require. But as an alternative it combines the better parts of health technology and property to be put in the better parts of the alternative sector. Looking out of the window of UBS-AM’s magnificent HQ over offices that might be suffering from post-Covid over-supply, the opportunity seems too good to resist. And it meets the ambitions of the government for us to invest domestically and in infrastructure. What wasn’t to like? We had learnt a great deal about something that few of us had appreciated as an opportunity for our members – and which was not often introduced by our investment consultants, presented by an evident expert with the ability to explain clearly and confidently to non-aficionados just how it all works. The only drawback, apart from learning the difference between wet labs and dry labs, was understanding the meaning of the acronym ‘GMP’ which doesn’t mean what many of us had been tangling with, but ‘good manufacturing practice’.
And of course, the last year or so has been challenging for investments. So faced with chunky losses on fixed income, technology stocks falling out of bed and Private Equity options being illiquid and difficult to value, trustees could be forgiven for examining some alternatives.
Given the collapse in tech stocks and a similar fall in property investments, one could understand if trustees took a jaundiced view when faced with an investment that combines them both. At a recent mallowstreet University dinner, UBS-Asset Management (UBS-AM) offered an investment option over which in theory trustees should have shaken a mournful head.
But the presentation, immaculately conducted by Olivia Drew, the UBS-AM Portfolio Manager of the UK Life Sciences Property Unit Trust, suggested that the life sciences sector (a different kind of tech) coupled with purpose-built property filled with lab space and good manufacturing practice units (GMP) should be worth a thoughtful look.
We were introduced to the idea that investing in buildings, some in city centres, some in science parks, some with short leases, others with extended contracts, might give us a return of around 15%, which even with raised fixed-income rates looked compelling. Olivia deftly dealt with some of our more sceptical views, ranging from the availability of similar opportunities in the US, to restricting the portfolio to the Golden Triangle, a novel concept for many of us. This simply describes the geographical diagram between Oxford, Cambridge and London, which seems to be where the biotechs prefer to congregate, even though they could enjoy the fruits of Wolverhampton or Middlesborough. UBS-AM, unlike many if not most investors, take on the risks of planning permissions (zoning), construction and letting, with results that seem immensely attractive. Much depends, as ever, on the particular skills of the manager, but UBS-AM seemed big enough and tough enough to manage the process with some panache as some of our more expert guests appreciated. And it helps to be hands on – Olivia had just returned from some site visits.
Quite where to put the investment into the various buckets that regulators seem to insist on imposing seems uncertain. It’s not fixed income, and it’s not an equity, and it might not be as liquid as some might require. But as an alternative it combines the better parts of health technology and property to be put in the better parts of the alternative sector. Looking out of the window of UBS-AM’s magnificent HQ over offices that might be suffering from post-Covid over-supply, the opportunity seems too good to resist. And it meets the ambitions of the government for us to invest domestically and in infrastructure. What wasn’t to like? We had learnt a great deal about something that few of us had appreciated as an opportunity for our members – and which was not often introduced by our investment consultants, presented by an evident expert with the ability to explain clearly and confidently to non-aficionados just how it all works. The only drawback, apart from learning the difference between wet labs and dry labs, was understanding the meaning of the acronym ‘GMP’ which doesn’t mean what many of us had been tangling with, but ‘good manufacturing practice’.
