Few people speak more effusively than Mike Perry about the future of real assets for the individual investor. As some of the country’s largest institutional investment managers start taking those first, tentative steps to introduce real assets to the retail market and defined contribution plans, Perry sounds ready to turn those baby steps into a full-throttle sprint.
As head of structured products and alternative investments at Nuveen, he is responsible for growing the organization’s alternative investment capabilities, including in formats accessible to retail financial advisers, high-net-worth clients, as well as institutions traditionally served by Nuveen and TIAA. The stakes recently got much higher.
TIAA acquired Nuveen in 2014, creating one of the industry’s largest and most diversified investment organizations. In 2017, TIAA’s Asset Management unit, Nuveen and their 12 investment affiliates began delivering all asset management capabilities under the name Nuveen, with a combined AUM of $882 billion. The “new” Nuveen now offers products that nearly every public and private asset class in every type of investment wrapper, including a $161 billion alternative investment platform of which Perry is an integral part. Nuveen serves as the investment management arm of TIAA, investing on behalf of the 5 million participants and more than 16,000 institutions in its retirement plans, in addition to offering global asset management services to external institutions and individuals.
This evolution of the business and its expanding global scope presents a significant challenge for Perry. Even for a person of his pedigree — having burnished his skills during five- and 15-year stints, respectively, at UBS Wealth Management and Merrill Lynch — it has to feel somewhat like he has entered the crucible. If Perry has any qualms about his fitness for leading this charge, it is not betrayed by anything in his demeanor.
In fact, Perry is motivated by tackling complex problems and even sometimes likes having “too much to do,” an asset, given that there are still plenty of changes afoot. Perry refers to the combined business model as a multi-boutique structure, which features several independent managers rather than a single CIO governing overall investment activities.
“In a lot of ways, we feel like we are a $900 billion startup,” he says.
For example, in addition to tapping TIAA’s deep institutional capabilities, Perry points to the combined organizations’ use of new technologies to create ease-of-access to various asset classes and strategies by using a white-label platform in partnership with Artivest. The Nuveen Alternatives Gateway technology platform permits an adviser to watch videos from portfolio managers discussing the strategy, view digital pitch books, access data, commit money to a fund and access client reporting — all online and paperless. The transaction clears and settles in the adviser’s custodial account, and Nuveen electronically provides notifications and distributions.
The technology platform is already live, raising money and making closes. Perry calls it “transformational.”
“At firms where I previously worked, we had very large alternative businesses and it was very manual,” he says. “What I wanted to avoid is all that manual operational work and really make the client experience simple.”
Perry explains that many transactions never get done because the process is too difficult and time consuming for financial advisers to justify. Once they plow through the complexities of the offering, they have to figure out how to actually make the investment.
“For us it’s very important not just to deliver great capabilities, but to make them accessible,” he says. “The technology has evolved to the point where that’s possible. We think that’s going to lead people to have more options when investing.”
Perry also expects to see the market expand with more participation from Registered Investment Advisers, as a broader array of products is made available, and procedures for advisers and investors to conduct due diligence and consummate transactions are simplified.
Simplicity, along with sound product design is integral to getting advisers and investors more committed to private equity investment in real assets and other alternatives, says Perry, who labels himself a “big believer” in illiquid assets and the premium they produce. He expects that more wealthy individuals and families will allocate a higher percentage of their overall portfolios to longer-dated alternatives as investors better understand the benefits of illiquid alternatives, namely: diversification, lower correlation, volatility reduction and stable income.
Still, experience has shown Perry that most retail investors are looking at individual strategies with some degree of liquidity — for example, thematic real estate strategies in a private fund format that offers monthly or quarterly redemption opportunities.
Among real assets, Perry is particularly optimistic about agriculture and the many underlying companies that refine, package and distribute agricultural products to consumers. That optimism is being driven by the world’s many emerging markets that are sprouting new and expanding middle classes. As the world gets richer, the demand for “super foods” — such as tree nuts like almonds and pistachios — escalates.
Asked to identify his own favorite super foods, Perry names avocados, blueberries and salmon, all of which help support his training regimen for a multiday bike race he will participate in this summer. Meanwhile, he is avoiding processed sugars and breads.
“I actually am part of that demand story,” he remarks.
Nuveen, pre-TIAA, was largely a retail investment firm anchored around municipal bond strategies and closed-end funds. Most of the alternative capabilities and the decades of experience investing in real assets for institutions come from the legacy -TIAA part of the business, and Perry is now leading the charge to offer these strategies to individual investors and their financial advisers.
Unlocking the real estate, agriculture, agri-business and credit capabilities, and making them easily available to buy and access for “two-legged individuals,” is central to Perry’s objectives as the TIAA/Nuveen marriage becomes solidified in the coming years.
“We are a real player and a leader in the real assets space, and all that institutional fiduciary-minded investment skill gained from working with sovereign wealth funds, insurance companies and state pension plans is now being offered to individuals.
Currently, most of the real assets held by Nuveen’s roster of individual investors are commodities and real estate, where they can get more ready-access to listed types of investments. Over time, the expectation is that clients will have more exposure to private equity real estate and other direct real assets. With investors searching for ever-more-elusive returns from their commitments, the illiquidity premium offered by direct ownership of real assets has growing appeal.
And the high end of the market — affluent investors most likely to incline toward illiquid real assets — is growing faster than ever.
“When wealth is created,” he says, “that wealth is looking for smart, thoughtful places to put capital.”
While acknowledging that, all things being equal, people will prefer liquidity, Perry feels thta more investors are adding exposure to long-dated, less liquid funds to gain enhanced yield and returns.”
ONE STEP REMOVED
The aggregate exposure to traditional alternatives among Nuveen clients can be as low as 3 percent, Perry says, but he has seen industry-wide allocation recommendations range from zero to as high as 40 percent, depending on the particular risk tolerance of the client, their ability to carry illiquid assets and their comfort with private equity-type structures.
“The exposures are well south of where the advice and the recommendations are,” he says, “so we think there is a lot of room to grow and a lot of room for clients to get exposure.”
Why the discrepancy? Perry says Nuveen is “one step removed” from the underlying client, meaning that when it creates funds for clients to get access to alternative strategies, it is the financial adviser who makes the final recommendation.
“While we do provide thought leadership around the best ways to incorporate real assets in a portfolio, we don’t have direct control of those allocations,” he says. “Those sit with the financial adviser.”
Considering that mammoth Nuveen has $900 billion of equity, fixed-income and alternative assets spread across hundreds of different product types — everything from mutual funds and separate accounts, to private and closed-end funds — “it’s a continual process of education and engagement with advisers,” Perry says. “We are very well diversified as a manager, so they need to know what strategies are available that best serve their clients.”
THE ESG OVERLAY
Beyond the appetite for real assets, Perry says increasing numbers of investors are aiming to direct their dollars to what is “real and meaningful” to them, referencing the trend toward ESG, or environmental, social and governance investment criteria. He called it a “key sentiment” that motivates many of today’s investors. Nuveen’s enthusiasm for that trend is connected to what Perry says is the organization’s heritage of socially responsible and impact investing.
For instance, TH Real Estate — the real estate investment management arm of Nuveen — recently made a public commitment to reduce the energy intensity of its 134 million-square-foot, $68 billion global equity portfolio by 30 percent by the year 2030, based on a 2015 baseline. The platform has already achieved a prior target set for its U.S. portfolio in 2007 and has reduced U.S. energy consumption by 20 percent, well ahead of the 2020 commitment.
These types of initiatives resonate across both the institutional and individual channels, yet, oftentimes the challenge is how to get clients, particularly individual investors, engaged with real asset strategies. That is where Perry will bring his experience to bear. His role, and strength, as an investment professional has traditionally been devising strategy and solutions.
“When we look at different real assets and alternatives strategies and asset classes, it’s more about the ‘how’ you bring access and exposure to investors.” Perry says. “That’s the space I bring the most value to. So, if an individual does want access to a longer-dated, privately held asset, how do you do that in a way that fits their particular goals as an investor? Bringing those capabilities to clients — that’s where my expertise is anchored.”
A CENTURY IN THE CLASSROOM
TIAA got its start from Andrew Carnegie and his Carnegie Foundation for the Advancement of Teaching, which created the Teachers Insurance and Annuity Association of America (TIAA) in 1918 to provide retirement plans that colleges needed to attract talented teachers and offer adequate pensions. Over time it evolved into a diversified Fortune 100 financial services organization. In the 1970s, (then TIAA-CREF) it was one of the first companies to use an extensive portfolio of international stocks as part of its investment strategy. In 1988, it began expanding its variable annuity offerings, which now number 10 and include the TIAA Real Estate Account, allowing individual investors to invest in directly-owned real estate properties.
Decades ago the firm started offering direct real estate investment management to third parties and now, following the 2015 acquisition of Henderson Global Investors’ real estate division (a giant player in Europe), the TH Real Estate affiliate is among the world’s largest real estate managers. In addition to expanding its real estate holdings, TIAA gradually diversified its portfolio into other real asset classes, including timber (which lead to an investment in timber affiliate Greenwood Resources) and agriculture (managed by Westchester Asset Management).
Of course, TIAA’s asset management arm (now part of Nuveen) has expanded well beyond teachers as a client base and has been investing on behalf of third parties — other institutions and individuals — for many years.
John Nuveen & Co.’s first deal was recorded in 1898. Capitalizing on a unique niche in municipal bonds, the company grew quickly. By mid-century, the Chicago-based investment bank was the largest municipal bond specialist in America. By 2014 when it was acquired by TIAA, the firm managed approximately $231 billion of AUM and was a market leader in closed-end funds and the retail managed account arena. It had also recently expanded its suite of mutual funds — more than doubling its offering of non-municipal bond funds.
Among Nuveen’s current priories is expanding the real assets and alternatives business.
ONLY THE BEGINNING
Oddly enough, Mike Perry earned an engineering degree from the University of Michigan and his first job after graduating was as a commissioned sales person working for an AT&T division that was later spun off as Alcatel-Lucent, and eventually acquired by Nokia. Some of Perry’s clients while at AT&T were derivative broker/dealers who he was outfitting with communications equipment and voice and data networks. Besides developing friendships with people in the derivatives space, Perry also got to know the firm’s principals. In time, the Miami native realized he preferred the financial industry to telecom sales.
Perry went back to school, this time to the NYU Stern School of Business for an MBA. While there, he contacted Merrill Lynch and got an opportunity to work with its equity derivatives business, which at the time was a new effort to bring structured products and derivative strategies to individuals.
“I was heavily involved in building out that entire business,” he recalls. “We offered clients protected notes and protection for their single stock positions.”
After Perry graduated, Merrill Lynch brought him aboard in a permanent role. Between his stint there and at UBS Wealth Management, Perry says he has touched pretty much every financial instrument and capability that could be delivered to the individual. Little wonder why TIAA/Nuveen brought Perry aboard in July 2015.
One of Nuveen’s selling points is its ability to invest in tandem with its clients, creating an alignment of interests that many advisers and investors consider a strong inducement, as well as a differentiator from many other alternative investment houses. Though not a revolutionary idea, Nuveen — on behalf of the TIAA General Account — is investing side-by-side in denominations that make the policy meaningful.
“If we are launching a new fund, the general account may choose to invest when strategies align,” Perry says. “And it can be a significant investment. Third-party investors like the fact that one of our biggest clients is a demanding fiduciary that negotiates favorable terms and conditions as an investor.”
Nuveen is currently offering multiple strategies to high-net-worth and other individual investors, drawing heavily on the expertise of TIAA’s alternative investments platform, which includes private global real estate, private equity, agriculture, agribusiness and timber investments, as well as alternative long/short credit-
based, and special sector investment strategies.
“Some of these strategies are our first money-raising efforts that go beyond your typical retail mutual funds,” Perry notes. “We have a pipeline of additional funds that we plan to bring to market as we match-up and assess client demand. We could bring multiple funds to market today — we just have to make sure the demand is there.”
Sounds like a lot for one person. Good thing Mike Perry likes having too much to do.
Mike Consol (firstname.lastname@example.org) is editor of Real Assets Adviser.