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EXCLUSIVE: Partners builds $400m stake in record Asia fund

Over a series of transactions, the Zug-based private markets investment manager, has built up a stake in BlackRock Asia Fund III, equivalent to 10 percent of its original $3.9 billion of equity.

Partners Group, the Zug, Switzerland-based private markets investment manager, has become a major investor in one of Asia’s largest private equity real estate funds following a number of transactions made on the secondaries market.

PERE can reveal the firm has built up a position that is equivalent to 10 percent of the original $3.9 billion of equity raised for the BlackRock Asia Fund III opportunistic real estate fund – once the biggest fund of its type in the region when it was raised in 2008. 

Partners bought the positions from the fund’s existing institutional investors over a number of deals, the latest one of which is understood to have concluded earlier this week. The firm declined to comment on the deals.

However the news demonstrates Partners’ undiminished appetite for buying into controversial Asian funds. This summer it bought 12 percent of the equity in Winnington Capital’s Trophy Property Development fund, a China development-focused fund that went array shortly after attracting $1 billion in commitments, also in 2008.

Raised by private equity real estate firm MGPA – prior to its acquisition by BlackRock last year – Asia Fund III has provoked criticism for its heavy weighting to Asia Square, a twin tower office development at Marina Bay in Singapore, which accounted for S$2.97 billion ($2.33 billion; €1.84 billion) of the fund’s capital and today represents approximately 90 percent of its net asset value.

Partners is understood to be positioning itself to take advantage of the fund’s liquidation, expected to occur in 2017. Although Asia Fund III is thought unlikely to achieve the return of 20 percent IRR and a 2x equity multiple expected of private real estate opportunity funds generally, it is expected to perform well relative to its fund vintage. 

Like some of its peers, the fund has had its investment period extended to ensure it could put unspent capital to work in an improving market. One PERE source, familiar with the fund, said that while such an extension of the fund’s life would have impacted its IRR, it is nonetheless expected to generate an attractive equity multiple, possibly as high as 1.8x.

“For the bigger investors, that won’t be a problem,” the source said. “In comparison to other funds of that vintage that would have lost equity, while this has taken a lot longer, it’s still a nice equity multiple. For its vintage, the fund might actually be pretty good.”

In any event, it is understood that the Partners purchases have been executed at a variety of discounts to the prevailing NAV, from between 25 percent to 30 percent on at least one occasion, 7 percent on another and at par on another.

On the deal struck at par, PERE’s source said: “They already had a position in the fund and I think they’ve been averaging in. There was a call that the Singapore office market is bottoming out and would take off from last year. There have been some really big discounts for this fund. Gradually, however, they’ve been dwindling away.”

BlackRock Asia Fund III was surpassed as the largest opportunistic real estate fund raised for Asia investments earlier this year when Blackstone, the New York-based private equity real estate giant, brought the capital raising for its first Asian real estate opportunity fund, Blackstone Real Estate Partners (BREP) Asia, to $4.2 billion. That fund is still in fundraising mode and although its original $4 billion target has been reached, it has a hard cap set at $5 billion. It is expected to be closed by the end of the year.

BlackRock is expected to hit the fundraising trail again at the start of next year for a successor to BlackRock Asia Fund III, PERE revealed this week. The forthcoming fourth fund, is expected to be far smaller than its predecessor, with a likely target of $1 billion.

Partners, meanwhile, announced the closing of its second global real estate secondaries fund yesterday. The firm broke its own capital raising record with the fund, attracting $1.95 billion of equity commitments from investors. In an announcement on the raising the firm said it had already deployed some of the capital. However, is unclear at this stage whether that included the investment in BlackRock Asia Fund III.

BlackRock could not be reached for comment.