Myron Zhu, head of Asia private markets at Manulife Investment, considers the new partnership between the Canadian insurance company and Hong Kong-headquartered ARCH Capital Management to be a “key building block” in building out the former’s third-party capital management business in Asia-Pacific.
Last week, Manulife announced that it would acquire a significant minority equity position in the private equity real estate manager. ARCH Capital specializes in opportunistic and value-add strategies and is currently expanding into core and core-plus in Greater China, Southeast Asia and Australia. The partnership aims to offer investors a comprehensive product suite across various strategies with broadened scale and presence.
“ARCH Capital is important for us as we try to build out our third-party management business. That’s a top strategy for Manulife Investment Management. We have done so very successfully in the public markets and I am tasked to replicate that for our private market [business] in Asia,” said Zhu. “An important piece of the puzzle for Manulife Investment Management is a proven dedicated third-party private market asset management platform.”
Manulife has historically been investing in core and core-plus real estate strategies in Asia-Pacific with its balance sheet capital and it is aiming to expand its investment capability in the region. Zhu thought ARCH Capital provides the “best fit” for Manulife as it brings a full spectrum of investment capability from opportunistic, value-add and build-to-core, as well as a group of existing investors. The ARCH platform also brings on investment capabilities in new geographies such as the Philippines and Thailand. “When you put these together, you see the synergies with very little overlap,” he added.
Going forward, Manulife will become the anchor investor in ARCH Capital’s new products. Richard Yue, founder and chief executive officer of ARCH Capital, said: “What we are getting now is we can tap into a mothership and an institutional-grade resource. Not only does the investor have the core and core-plus capability that we are trying to build, but the partnership also instantly gets us deeper into markets like Australia and new markets like Japan, where we don’t have a presence yet.”
Speaking of the pair’s future expansion plan in the APAC region, Zhu told PERE that the firm has “big ambitions.” On a combined basis, the partnership’s total AUM exceeds $5 billion across 12 markets in Asia. “I would hope to see double-digit percentage growth in terms of the combined real estate AUM in the next few years,” said Zhu.
The expansion plan in Asia is being fueled largely by the insurer’s growing balance sheet in Asia. The region contributed 39 percent of global core earnings for Manulife as a group in 2021.
“We naturally have investment need, and we need to put the money to work. By inviting likeminded partners to invest with us, we want to build a third-party private markets business with full alignment of interests among all stakeholders to deliver good risk-adjusted returns to our investors,” Zhu said.
In 2020, the firm bought a stake in Chinese renewable energy and digital infrastructure manager Albamen Capital Partners as its first step in expanding its third-party capital management business in Asia and said it would consider striking a similar deal with a private equity firm in the region, according to a report from affiliate title Private Equity International.