Arch Capital targets $500m for third fund

The Hong Kong-based firm has started marketing its third pan-Asia opportunity fund to existing investors ahead of a first closing and is expected to widen the net to other investors afterwards.

Arch Capital, the Hong Kong-based private equity real estate firm, has begun fundraising for its third pan-Asia opportunity fund, targeting $500 million of equity, PERE can reveal.

The firm, led by former AIG Real Estate executive Richard Yue and ex-Ayala Corporation executive Charles Cosgrove, has started its marketing effort by taking the Arch Capital-TRG Asian Partners III fund to existing investors first ahead of a fist closing anticipated to happen sometime in the summer. After that, Arch Capital is expected to extend its fundraising effort to new investors.

According to PERE sources, the firm is returning to the capital markets having made a critical mass of exits from its second fund, Arch Capital-TRG Asian Partners, which was closed on $387 million in late 2012. The firm has made six exits, valued at as much as $250 million, from markets including China, Thailand and Singapore. Further, it is understood each of these exits has either hit or exceeded the firm’s target return of 20 percent IRR and 2x equity multiple.

Arch Capital hopes to raise $500 million for its third fund, the same target it set for the second vehicle. It opted for that fund to wrap up fundraising after 16 months of marketing, shy of the target. However, unlike the generally tougher capital raising markets of 2011 and 2012, this time around, investors have generally been more favourable towards Asian opportunistic funds, those managed by firms demonstrating strong track records. Indeed, in the past year, firms including Phoenix Property Investors, Gaw Capital Partners and Secured Capital have been able to exceed their fundraising targets and hit their hard caps.

For its third fund, Arch Capital is expected to deploy a similar strategy to its previous fund, prioritising preferred equity investments in markets including China, Thailand, Singapore, Hong Kong, Macau and Thailand, though Vietnam is also understood to be on its target list of markets. It is also expected that Arch will offer to investors committing equity greater co-investment opportunities than it has done for previous funds.

Arch Capital was unavailable for comment.