Moonbridge targets $400m for maiden fund

After canvassing views from prospective investors, the Hong Kong-based firm has launched a China-focused vehicle similar to traditional private equity real estate funds, but allowing for a strategic review half-way through its investment period.

Moonbridge Capital, the Chinese development-focused start-up firm, led by ex-ADIA senior portfolio manager Pius Ho, is set to begin capital raising for its first private equity real estate fund.

Having spent the earliest part of 2012 canvassing views from prospective investors to determine what kind of investment vehicle would be most suitable for its strategy, Ho told PERE the Hong Kong-based firm was now ready to begin capital raising for its debut product.

The Moonbridge Capital Greater China Development Fund is to be structured as a blind-pool, commingled fund for which the firm has set a capital raising target of $400 million. Moonbridge has determined to coinvest 5 percent of the fund’s capital via a combination of the principal’s resources and those of an undisclosed Hong Kong family currently sponsoring the new firm.

While much of the fund’s structure resembles a traditional private equity real estate limited partnership, in one nuance, the fund is expected to offer investors the option of reviewing the firm’s investment strategy mid-way through the fund’s investment period.

By way of a vote, either when half of the fund’s equity has been drawn down or two years through its four-year investment period, the fund’s largest investors will be able to approve a switch in strategic direction for the remainder of the investment period – if needed.

Ho explained the measure had been included in its fund governance partly as a result of an increasing need among institutional investors to adopt positions of greater control on their commitments to third-party capital managers. He added that the measure was a good way to ensure LPs had a voice at times when markets shift to a degree where the original investment thesis would require reconsidering.

Such a measure could prove interesting to investors particularly given Moonbridge is targeting developments in China’s Tier II office markets and the country’s Tier II and Tier III residential markets, both of which have been subject to significant government policy swings over the past few years.

“It’s not a deal by deal measure but a strategic measure and we can operate within that box,” Ho said, “We felt it gives to both the GP and the LPs. We can operate within what [strategy] has been discussed and the LPs can [then] dictate what is of interest to them on a going forward basis.”

The Moonbridge Capital Greater China Development Fund is expected to run for eight years, four of which would constitute its investment period. Moonbridge is expected to target opportunistic returns at the investment level of between 18 percent and 20 percent, net of taxes, and an equity multiple of between 1.8x and 2x equity.

In terms of fees, the firm expects to charge 20 percent after the first 9 percent return is provided for and a management fee of 2 percent. Should the firm hit its $400 million capital raising target, investors participating in the fund’s first capital closing can expect a management fee rebate from an initial 2 percent to 1.75 percent.

No placement agent has been appointed at this stage.