Harvest Real Estate Investments (HREI), the Hong Kong-based joint venture company formed last year by Harvest Fund Management and Grosvenor Fund Management, has started fundraising for its first private equity real estate fund, the HREI China Total Return Fund.
The firm led by Rong Ren, the former chief executive officer at Harvest Capital Partners, which is no relation to Harvest Fund Management, is hoping to attract up to $500 million in equity commitments from institutional investors globally and from China. A first closing is expected by the fourth quarter of this year ahead of a final closing next year.
The firm is expected to contribute up to 5 percent of the fund’s equity and its directors will also invest into the vehicle.
HREI declined to comment on fundraising matters however PERE understands the fund will adopt a slightly more conservative investing strategy to those undertaken for three previous opportunistic funds managed during Ren’s time in charge at Harvest Capital Partners.
HREI is targeting investments in the retail, office and mid-level residential sectors in China’s tier I and tier I.5 cities – a recently developed term for Chinese cities that show the economic hallmarks of becoming a tier I city – with a view to generating an IRR of between 16 percent and 18 percent, pre-carried interest being paid. On a net basis, investors should expect an IRR of between 14 percent and 15 percent on a portfolio basis – notably lower than China real estate focused fund managers have previously targeted for their investors.
HREI was formed by Beijing-based investment manager Harvest Fund Management and London-based property fund manager Grosvenor Fund Management in September last year in a tie-up that represented both Harvest’s first foray in direct real estate investing and Grosvenor’s first investment into a JV platform investment.
The venture was brokered by Ren, who had departed from Harvest Capital Partners earlier in the year following a disagreement about its strategic growth plans, Morgan Laughlin, Grosvenor Fund Management’s former Asia head who has since moved to Pramerica Real Estate Investors, and others.
After forming, HREI is understood to have spent months devising a strategy that would sit effectively with Beijing’s rapidly evolving real estate policies which were formed with the intention of stemming speculative investment and property bubbles in the country.
Against that backdrop, and with many institutional investors still underweight in Asia, the firm is positioning itself as a conduit to investing in the country with less risk than offered by its peers, expecting a favourable response to its slightly lower return target.