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AIP eyes launch of $800m China retail fund

The Singapore-based fund manager is planning to partner with domestic retail partner Chongbang for the formation of an evergreen vehicle.

Alpha Investment Partners, the fund management arm of Singapore-listed property company Keppel Land, is plotting the launch of an $800 million evergreen fund focused on Chinese retail by the end of the year, PERE can reveal.

Following Alpha and its co-investors’ investment in the Lifehub @ Jinqiao mall in March 2013, a deal which valued the center at RMB3.3 billion (€395 million; $528 million) and which has outperformed their underwriting by 11 percent, the Singapore-based firm is in talks with its existing investors about forming a property fund to capture opportunities in the market, according to managing director Christina Tan.

The fund would be set up as a joint venture with Chongbang, the domestic retail partner that Alpha worked with on the Lifehub project. Chongbang also has had success with multiple other malls in the Shanghai area, Tan said, and thus Alpha’s fund also would be focused on the Yangtze River Delta region.

“Chongbang has done well for itself and already has been invited by the government to look at certain sites to consider redevelopment,” Tan told PERE. “That will help us to get the land at a reasonable price.” She added that a good retail partner in China is essential because, even though there is an oversupply of retail space in China, “Chinese developers that understand what shoppers need are few and far between.”

For now, Alpha is opening the fund to only a handful of its current international investors that want to keep the assets for the longer term. Alpha also will explore making the fund open-ended to allow investors to add further capital at a later stage.

“There are a number that have been investing in the China retail sector already and have jointly seen with us how the sector is trending,” Tan said. The vehicle will involve a mixture of development and repositioning investments to prepare for long-term hold, targeting core-plus returns overall.

In order to meet the growing challenges of e-commerce, Tan also added that Alpha and Chongbang will need to work to “differentiate” their malls. E-commerce tends to target the lower price range market, so successful malls need to play to the middle class’ “demand to progress.” Things like entertainment, dining, cinema and luxury lifestyle cannot be filled by the e-commerce industry, which are the kind of tenants Alpha will be seeking.

With S$10.5 billion (€6.3 billion; $8.4 billion) in funds under management, Alpha manages both core-plus and value-added funds. Most recently, the firm sealed a €127 million Japan exit for its $1.18 billion Alpha Asia Macro Trends Fund I and a $550 million exit of Equity Plaza in Singapore for one of its core-plus funds at a 6x equity multiple, according to the firm. Last July, Alpha hauled $1.65 billion for Asia Macro Trends’ successor vehicle, Alpha Asia Macro Trends Fund II, and already has invested more than one-third of that capital.