Invesco Real Estate’s flagship open-end core vehicle in Asia, among the region’s oldest perpetual life funds, is facing $600 million in unmet redemption requests by two of its key investors.
UBS Asset Management is one investor looking to divest its entire allocation. UBS is understood to have sent a redemption notice to Invesco in November. One person familiar with the Invesco fund told PERE that UBS’s investment accounts for around 60 percent of the $600 million total. The remaining divestment request – around $200 million – came from an undisclosed US investor earlier in 2019.
PERE understands all key investors in the Invesco Real Estate Asia Fund have been notified about these redemption requests. So far, there are no plans to establish any sort of gate for the vehicle, which had a total gross asset value of over $3 billion as of December 31, 2019. The person also said Invesco expected an incoming capital queue of $400 million into the fund as of the end of Q1 2020. This total includes capital that has already come into the fund within the quarter, as well as commitments yet to be finalized.
One of the reasons for UBS’s full redemption, PERE’s source added, was that the fund was viewed as being slightly “over-allocated to Australia,” especially since UBS already had exposure to Australian real estate through other vehicles. As per the fund’s initial marketing document, the target capital allocation to Australia was 15 to 35 percent. By its fifth year, the fund was expected to have its largest market allocation in Australia, at 25 percent, followed by Japan at 24 percent.
UBS did not respond to PERE’s query on the reasons for this redemption and the name of the specific vehicle that committed to the Invesco Real Estate Asia Fund.
The Invesco Real Estate Asia Fund was launched as the global asset manager’s first Asia core vehicle in 2014. The vehicle reached a $400 million first close in the same year, against a long-term target of raising around $1 billion within five years. Investors in the fund include the New Mexico State Investment Council with a $150 million commitment, the California State Teachers Retirement System with $200 million and the North Dakota Retirement and Investment Office with $30 million.
As of Q3 2019, the fund was generating a net 6.4 percent IRR and a 1.2x equity multiple, according to New Mexico State Investment Council’s performance report. In comparison, one of the fund’s peers – JP Morgan’s 2016-vintage open-end Asia fund – was generating a net 4.5 percent IRR as of June 30, 2019, according to a disclosure by CalPERS.
Invesco declined to comment on the precise timeline within which the $600 million in redemption requests would be paid off. The proposed terms listed in the fund’s initial marketing document, seen by PERE, has the following note on redemptions: “The management company will use its reasonable best efforts to pay the redemption price out of the fund as soon as practicable. The management company, however, is not required to liquidate or encumber assets or defer investments in order to fund redemptions. Where more than one investor has submitted a redemption request, (including any previously submitted requests which were not fully satisfied), then any amounts available for the satisfaction of redemptions will be allocated among the relevant investors on a pro rata basis.”
The source told PERE that Invesco did not market any assets within the core fund for sale in the first quarter and the same will hold true for the second quarter. Invesco is not believed to have received any new redemption requests for the fund in Q1 2020.