M&G Asia core fund sees $112m of units change hands

The real estate investment arm of UK insurer Prudential has seen $112 million within its Asia core, open-ended real estate fund change hands with units purchased predominantly by European and American institutional investors.

M&G Real Estate, the real estate investment arm of UK insurer Prudential, has seen new investors acquire $112 million of existing units in its pan-Asia focused Asia Property Fund from outgoing investors since the start of the year. The total equity committed to the core vehicle stands currently at $1.2 billion.

Scott Girard, chief executive of M&G Real Estate Asia described the engagement of new investors as demonstrative of “a marked increase in investor appetite for Asian real estate in 2013.”

“Large pension funds have invested in Asian real estate for some years and we’re now seeing growing interest from smaller pension schemes and insurance companies wanting to increase the diversity of their real estate allocations and grow their capital by investing in mature Asian markets,” Girard said in a statement.

The fund was the first of its kind in Asia when it was launched in July 2007 in cooperation with LaSalle Asset Management, and had $600 million of assets transferred to it from Prudential’s UK life funds on day one. However, LaSalle signed over its responsibility for the fund in April 2012 to focus on core real estate strategies on its own and on more of a country-specific basis. 

The Asia Property Fund, including the commitments from new investors, is fully invested at this point, Girard told PERE. However, he said the firm would be looking to secure additional capital commitments in the near future. 

The fund's portfolio consists of seven assets across Hong Kong, Singapore, Korea and Australia. Looking ahead, M&G aims to add further investments in Hong Kong and Korea but also in Japan, said fund manager Erle Spratt.

The firm is targeting an 8 percent annual return for the fund, although in 2012 it is understood to have hauled in an 11 percent IRR overall, and a 9 percent unlevered return. As such, it is considered one of the least traded real estate funds in the sector, as only 5 percent of its shares were up for sale as of Q1. After this fundraising round, the fund will have no units up for sale.

M&G also announced that one of the fund’s assets, the 400 George Street office building in Sydney, has just seen one of its tenants extend its lease through 2025. The Australian telecommunications and media company Telstra has let out 323,000 square feet over 17 floors, reducing the vacancy rate to 1.6 percent and providing annual income growth of 4% starting from 2014.

M&G Real Estate has assets under management of £16 billion (€19 billion; $25 billion) globally, $1.7 billion of which is in the Asia-Pacific region. M&G was formerly known as PRUPIM, but rebranded to have the same name as its parent company earlier this year.