Real estate fund of funds first came into existence almost ten years after the birth of the opportunity funds in the US. Much as they did in the traditional LBO sector, these types of vehicles helped drive the evolution of the industry, introducing established investors to new markets and providing smaller institutions access to the asset class.
Fund of funds, which raise equity from institutional investors and then commit that equity to individual fund managers, started popping up in real estate during the late 1990s as groups like the Bessemer Trust in New York and TKP Investments in Holland started peddling these products to their clients. Five years ago, the concept really started to pick up steam as US firms like Credit Suisse, Metropolitan Real Estate and Fiduciary Trust began launching fund of funds vehicles as well.
Given the underlying fundamentals in Asia, real estate fund of funds there are certain to grow and develop over time, gaining in size and prominence much like they did in both private equity and in the real estate markets of the US and Europe. Unlike private equity, however, the business seems to be growing at a much faster pace than in the past.
Much like the private equity real estate industry as a whole, real estate fund of funds focused on Europe are even younger. It wasn't until 2004 that Aberdeen Property Investors launched one of the first pan-European fund of fund vehicles, followed closely by Portugal-based Atrium Investimentos.
Given the recent growth in private equity real estate, in general, and particularly the growth in new areas such as China and India, perhaps it comes as no surprise that fund of funds are now turning towards the property markets of Asia.
Aberdeen, which was one of the first on the scene in Europe, seems to be leading the way in Asia, as well. Last month, the firm held a close on $435 million (€325 million) for its AIPP Asia fund; the firm plans a final close sometime in the second quarter and has already placed $172 million in four funds. AIPP Asia is looking at real estate vehicles across the Asia-Pacific Region, in addition to joint ventures and co-investment opportunities.
For investors looking at Asia, the advantages of fund of funds are myriad. A diversified vehicle with exposure to some of the region's hot spots, as well as more mature markets like Japan, can give investors access to many different countries that would have required an extensive amount of their own time and due diligence. And once LPs test the waters with fund of funds, they may eventually move on to make their own direct fund commitments in the future. Of course, such advantages do not come cheap: A double dose of fees—from the fund manager and the fund of funds manager—eats into the upside.
The establishment of AIPP Asia is one example of the maturation of Asia's property market, as is the recent closing of Doran Capital's Korea-focused private equity real estate vehicle or the numerous funds looking at Vietnam. As everyone knows, more and more capital is moving into the region. Fund of funds will no doubt add even more frenzy to the scramble for the best Asian-focused vehicles. Add to this the uptick in global fund of funds, such as those being raised by LaSalle Investment Management and Goldman Sachs, which will likely target the region as well, and the fund of funds business starts to get a bit more crowded.
Given the underlying fundamentals in Asia, real estate fund of funds there are certain to grow and develop over time, gaining in size and prominence much like they did in both private equity and in the real estate markets of the US and Europe. Unlike private equity, however, the business seems to be growing at a much faster pace than in the past. There was no tenyear lag, for example. In fact, it has only been two short years since opportunity funds first began targeting Asia en masse. Fund of funds are now quickly trailing at their heels.
That's not to say fund of funds are a bad bet. Just that the amount of capital targeting Asia, and the relative immaturity of the market, leaves open a lot of questions about the returns that can be achieved, especially if an extra set of fees are backed in. Investors may be happy to gain access to these markets, but they shouldn't necessarily expect a golden panacea on the other side of the door.
Aberdeen raises $435m for Asian fund of funds
Stockholm-based Aberdeen Property Investors held a close of $435 million (€325 million) for AIPP Asia, its new fund of funds vehicle focused on Asian real estate vehicles. The fund is aiming for an IRR of between 13 percent and 17 percent, which will eventually include an annual yield of 4 percent. The fund will cap commitments at $600 million and hopes to announce a final close in the second quarter. The vehicle, which held a first close on $91 million last October and has so far invested $172 million in four funds, will be managed by Bo Ljunglöf and Kang Puay Ju.
First close for Korean property fund
Korea-based investment banking and real estate firm Doran Capital Partners has held a first close on its TRISEAS Korea Property Fund. Details of the close were not disclosed, but press reports have stated that the fund has raised $208 million (€156 million), on its way to a $250 million target. After the final close, the fund plans to use 65 percent leverage to invest approximately $650 million in South Korean property. The fund will focus on core-plus properties in the office, retail, residential and industrial sectors of South Korea. The fund has a seven-year life and targeting IRRs between 15 percent and 17 percent.
CalPERS pro joins Franklin Templeton
Wenning Jung, formerly an Asia-focused investment officer with the California Public Employees' Retirement System (CalPERS), is joining New Yorkbased Franklin Templeton Real Estate Advisors as a vice president looking for investments in the Asian markets. At CalPERS, Jung implemented the public pension's real estate investment strategy in Asia and looked after a portfolio of seven international property funds.
MGPA acquires Singapore office tower for $660m
Macquarie Global Property Advisors has acquired the Temasek Tower in Singapore for SG$1 billion ($660 million; €495 million) from Singapore-listed developer and investor CapitaLand. The 52-story, cylindrical office building is located in Shenton Way in downtown Singapore. It has approximately 670,200 square feet of space and was completed in 1986. Last December, the private equity real estate firm acquired 12 floors in Singapore's Springleaf Tower.
VinaLand fund raises $407m
VinaLand, a publicly traded company on London's Alternative Investment Market, has raised $407 million (€313 million) for investment in Vietnam's emerging real estate sector. The company, which raised the money by selling 295 million shares, said the funds surpassed the original target of $200 million and will be used to build a diversified portfolio of prime real estate assets throughout Vietnam's most populated areas. VinaLand was launched by Vietnam-based private equity firm VinaCapital and operates out of offices in Ho Chi Minh City and Hanoi. It was admitted to AIM last March. Press reports said the firm is acquiring the 249-room Omni Saigon Hotel, a four-star property.