Hong Kong-based private equity real estate firm Gaw Capital Partners will carve out a sidecar vehicle to its seventh pan-Asia flagship fund for North American investors that want no exposure to Chinese real estate, PERE has learned.
The firm will create a separate sleeve for up to $600 million of equity commitments to be included in its Gateway Real Estate Fund VII vehicle. The fund, which has an official target of $2.5 billion, held a first close on $1.2 billion in November 2021. It is understood that fundraising has now reached $1.6 billion for Fund VII, but would be closer to $2.2 billion if it were to include the three or four investors that are keen to have any China investments ringfenced from their commitments.
Gaw Capital has historically provided sidecar vehicle options for its investors, so the move to accommodate them would not be a major departure from prior practices. Indeed, it is understood approximately $800 million in additional co-investment vehicles has already been raised for Fund VII, so the addition of this conditional money would see the total fundraise for the vehicle reach about $3 billion.
Gaw Capital has also previously accommodated investors wanting to be excluded from investments in their home countries. For example, in prior funds in the series, the firm offered such a solution to its Korean state investors unable to invest in their home country.
However, this is the first time a request has come from investors to be excluded from investments in another country, and the context surrounding the requests from the investors involved is notable given the current geopolitical tensions between the West and China.
Goodwin Gaw, the firm’s founder and chairman, declined to confirm fundraising numbers. But he confirmed to PERE that western investors expressing a preference not to be exposed to China was a sign of current international strains: “This is politics-driven more than anything. The investors in question don’t have the political mandate or willpower to touch China right now. So, unless we create a bespoke vehicle for them, they can’t come in.”
“We are a fiduciary partner. Our fund is there to give investors a wide exposure, but also to educate them. This way they can direct a large amount of capital on more concentrated bets on countries and sectors which they see fit.”
Gaw pointed out Fund VII’s exposure to China would in any event likely be the lowest seen in the fund series, with no more than 30 percent of the capital invested in the country.
Such an eventuality would mark a continuation of a trend for the series, which has gradually increased its weightings to other Asian markets. Fund VI, for example, had a 40 percent exposure to China. Fund V, meanwhile, was capped at 50 percent. Fund III was 80 percent invested in the country.
Gaw Capital was founded in 2005 and has raised $22 billion from investors for its Gateway Funds, as well as other vehicles, joint ventures and separate managed accounts. While the firm had a reputation initially for its opportunistic forays in China, it has gradually made greater inroads into other Asian markets like Singapore, Japan, South Korea, Vietnam, Japan and Australia. The investor had $33.6 billion of assets under management as of Q3 2022.
Gaw said: “It was always our goal to be known more as a pan-Asia manager. This is forcing the issue a bit. Certain investors cannot come to China, but the fact they’re willing to invest with us for strategies beyond China is a good sign that shows we have a good track record.”
Gaw also said the withdrawal from China by certain North American investors was not reflective of the appetite of Asian and Middle Eastern investors, many of which regarded such a North American departure as an opportunity to make greater inroads into China, particularly now the country is opening its borders after restricting access since the start of the pandemic.
He added that China would remain an important investment destination for the firm generally and expected economic growth there to restart.
Nonetheless, the move by Gaw Capital to split investors that do not want to be exposed to Chinese real estate from those that do comes at a time of bifurcating attitudes towards doing business in the country. These attitudes have assumed greater relevance after the government ended its ‘zero-covid’ policy at the start of the year.