KaiLong holds $100m first close on maiden fund

The Shanghai-based private equity real estate firm has attracted enough institutional investors to hold a first close months after launching its debut US dollar-denominated real estate fund.

KaiLongRei Investment, a Shanghai-based foreign-owned real estate investment firm, has held a $100 million first close on its maiden US-dollar denominated fund, well on its way to its $300 million target just months after launching, PERE has learned.

The firm’s investors are mostly smaller institutional investors and family offices from Asia and Europe, though the firm is also in talks with some investors from the US, according to Ivan Ho, KaiLong’s executive director for fund management. All the investors are new to the firm.

“We launched this fund hoping to raise between $200 million and $300 million,” Ho told PERE. “However, after seeing the appetite, we are confident that we can reach our $300 million hard cap.”

Since its founding in 2004 KaiLong has raised RMB 1.7 billion (€205 million; $278 million) across four RMB funds but it has yet to raise a fund denominated in US dollars. The firm recently exited its first RMB fund, achieving a 24 percent IRR and 1.89x equity multiple over a 3-year holding period, according to KaiLong.

However, in the past KaiLong has managed several separate accounts in US dollars for its investors. After the onset of the global financial crisis, the firm’s investors wanted more control over the deals KaiLong made in US dollars. Even though KaiLong has wanted to raise a US dollar fund for some time, until now it chose not to in order to prevent any conflict of interest with its separate accounts.

The firm will focus on commercial real estate for this fund, including office assets, industrial office parks and certain kinds of retail, in mainland China and Hong Kong, Ho said. The fund can also be used for development, but only up to 20 percent of its total capital.

The firm’s strategy for the fund places its risk-return profile somewhere between value-add and opportunistic, but Ho said it hopes to deliver opportunistic returns to investors with an overall leveraged IRR of between 18 percent and 20 percent. The fund’s leverage on deals is expected to be no more than 60 percent, he added.

In keeping with typical US dollar denominated private equity real estate funds, KaiLong’s is expected to run for seven years with two one-year extensions. To date, KaiLong has invested in 21 real estate projects with a total value of RMB 7.7 billion for both separate account investors such as Citigroup, Cargill, AEW, Secured Capital and Rykadan, and its RMB funds.