CITIC Capital, the investment arm of Chinese financial conglomerate CITIC Group, is imminently closing an RMB retail fund at around 3 billion yuan ($430 million; €380 million) PERE has learned from sources familiar with the fundraising. The target for the fund has not been publicly disclosed.
This commingled real estate fund is CITIC Capital’s first yuan-denominated fund launched exclusively to invest in Chinese retail assets. The fund’s capital will be invested with a core-plus strategy in first and second-tier city center retail assets. To that effect, the fund has been seeded with three retail projects in Beijing, Chengdu and Jinan, one source said.
With its latest fundraising, CITIC is betting on the small but growing domestic institutional investor base in China looking to deploy capital across alternative assets locally. PERE understands most of the capital for the fund has been raised from onshore Chinese insurance companies.
Many Chinese insurers started ramping up cross-border acquisitions to diversify their portfolios after the 2012 regulations passed by the China Insurance Regulatory Commission permitted them to start investing in overseas real estate assets.
A report by Cushman & Wakefield published in 2015 predicted Chinese insurers would invest as much as $73 billion in real estate investments by 2019.
Soon after, however, Chinese regulators introduced capital controls to curtail so-called speculative outbound investments in sectors including real estate. These measures continue to restrict institutional investors’ cross-border investing appetite to date. In 2018, for instance, Chinese companies, including insurers, managed to invest a sum of only $15.7 billion in overseas real estate, as per the real estate services firm.
Global investment managers are increasingly recognizing this pent-up demand from insurance companies and other domestic Chinese investors and launching onshore products targeting these new pools of capital. Last month, ARA Asset Management announced its first yuan-denominated real estate investment vehicle – an 800 million yuan joint venture partnership with the Beijing-headquartered investment manager CICC Capital. In April the real estate investment platform of Ping An Insurance reportedly partnered with a Chinese developer Cifi Holdings to launch a 10 billion yuan rental home investment and management business.
CITIC Capital declined to confirm or comment on specific details about the latest yuan fund but Stanley Ching, the firm’s senior managing director, acknowledged that the local institutional investor base is in general beginning to get more active in domestic alternative investments.
“There is an increase in momentum from insurers willing to participate in non-residential and non-guaranteed return investments,” he said.
In his view, this trend in China is in line with what happened to the asset management industries in other Asian countries when their economies became more robust.
“If you look at countries like Korea, Japan, you would have noticed the trend that when the GDP came to a certain level, large institutional investors like pensions and insurance companies became a major force in the investment circle,” he explained. “China will follow suit because the GDP per capita is reaching $10,000 very soon.”
Previously, CITIC Capital raised five RMB investment vehicles totalling approximately 8 billion yuan in capital.