Gaw Capital eyes $1bn for fourth China opportunity fund

The Hong Kong-based private equity real estate firm, founded in 2005, is approaching the prerequisite investment hurdle of its third China-focused opportunity fund. It is now paving the way for its biggest fund offering yet.

Gaw Capital Partners, the Hong Kong-based private equity real estate firm, is planning to raise its biggest opportunity fund to date, PERE can reveal.

The firm, founded by brothers Goodwin and Kenneth Gaw in 2005, is expected to launch its fourth fund, Gateway Real Estate IV, next month with a target of $1 billion. The largest fund it successfully raised to date was the second in its Gateway series which corralled $800 million in 2007 just before the global financial crisis put paid to numerous capital raising efforts in the sector.

Gaw Capital raised $423 million for the third fund in the series, holding a final closing at the turn of last year. For that fund the firm had originally hoped for nearer $800 million but, as it and many of its contemporaries came to realise, investor sentiment for blind-pool, commingled real estate funds fell to a relative low point resulting in few closings of note at the time.

In terms of target investors for the fourth fund, Gaw Capital is expected to seek repeat commitments from its existing investor pool, predominantly made up of pension funds, endowments and sovereign wealth funds. While many of its investors have historically come from the US and Asia, the firm is believed to want to widen its net to include European investors this time around. According to PERE Connect, PERE’s data sister, investors to have backed Gaw Capital in the past included Clerestory Capital Partners, New Zealand Superannuation Fund and Singapore state investor Temasek Holdings.

Gaw Capital would not comment on its fundraising plans. However, Christina Gaw, the firm’s managing principal and head of capital markets, told PERE the firm’s investment strategy remained consistent. She said: “Generally speaking, we still believe the long term story for China is about tapping into middle income growth. Obviously, urbanisation remains the key. We’re talking about affordable housing in tier II and tier III cities as well as retail. These remain the centres of attention for us.”

Gaw Capital has been particularly acquisitive of late, not just in residential and retail but in other sectors too. At the start of the month and in a joint venture with neighbouring investment firm CSI Properties, the firm bought from an opportunity fund managed by Chicago-based LaSalle Investment Management the Novotel Nathan Road hotel for HK$2.37 billion (€229.02 million; $304.97 million). It was lauded as the largest hotel transaction by value in the city for more than a decade.

There are understood to be a number of other transactions that are at various stages of completion which would bring the firm past the prerequisite hurdle of 85 percent invested before it can begin marketing another fund. While that hurdle has not yet been reached, it is expected to happen shortly. It is understood that a private placement memorandum is currently being drafted for the incoming fourth vehicle and that should be finalised in weeks.

Within that memorandum, Gaw Capital is expected to ask for asset management fees of 1.75 percent, in line with previous funds, although investors committing more than $100 million to the vehicle could expect a reduction. In addition, the firm is due to be seeking 20 percent carried interest after a return hurdle of 10 percent is reached – a fairly standard fee structure for the sector. The fund is expected to run for eight years but have two extension options of one year each and an investment period funning for four years – again in line with its previous funds.

PERE ran a profile interview with Gaw Capital's Goodwin Gaw in 2010. To read it, click here.