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PAG plots $1 billion core fund for Asia

The firm, which merged with Japan’s Secured Capital in 2011, is to leverage the Tokyo-based firm’s core real estate team for deals demonstrating long-term, sustainable income streams across nine gateway cities in Asia.

PAG, the investment management firm that merged with Japan-focused private equity real estate firm Secured Capital in 2011, has joined the race for core real estate investments in Asia.

In a further sign that Asia’s private real estate market is maturing, PAG has launched PAG Real Estate Partners LP, with a view to acquiring assets with strong cash flow across nine of the region’s gateway cities.

PAG, previously known as Pacific Alliance Group, has appointed Blackstone-owned placement agent Park Hill Real Estate to assist in raising $1 billion for the vehicle from investors for which it hopes to generate net returns of 10 percent to 14 percent. The firm’s capital raising effort is expected to start imminently.

According to a marketing teaser, obtained by PERE, PAG will pursue “high quality assets in key Asian cities characterized by long-term, sustainable income streams and predicated on a value-add approach focused on enhancing cash-flow and driving operating performance.” The teaser detailed how PAG would focus much of its efforts on the markets where it has greatest capabilities, namely Japan, China and Australia.

The marketing literature read: “PAG sees a number of attractive investment opportunities in the current markets, including i) distressed/pressured sponsors (e.g. financial institutions seeking to rationalize their balance sheets; existing asset owners seeking liquidity for either projects or corporate capital requirements; ii) underperforming assets that have been poorly managed and/or depraved of sufficient capital investment necessary to realize/retain value; and iii) portfolios and/or programmatic opportunities around target sectors and geographies that represent identified/researched opportunities.”

PAG is expected to hold investments for an average of seven years within the fund's life span of 10 years and 12 years. It would target moderate leverage of between 50 percent to 60 percent and would include a sponsor commitment of up to $20 million, or 2 percent of the total fund.

The fund’s arrival is the latest in an increasing line of private real estate investment vehicles focused on lower risk-return profiles in Asia and is further evidence of the region's market maturation. With an increasing amount of real estate in the region today considered as institutionally viable, firms including M&G, Invesco, BlackRock, Pramerica, Aviva, LaSalle and SC Capital have offered to investors funds with core-like strategies. 

Last month, PERE revealed how US institutions had ploughed $400 million into the fund of Invesco, evidence that such vehicles are not just being offered but that investors are willing to take the plunge with equity commitments too.

PAG will leverage the team behind Secured Capital’s Tokyo Recovery Fund, a hybrid club-fund managed jointly with Aviva Investors that corralled $300 million at the turn of 2013. With that fund close to being fully invested, the staff that worked on it are expected to switch focus to PAG’s larger, incoming vehicle.

That would also mean that staff working on Secured Capital’s record $1.5 billion Secured Capital Real Estate Partners (SCREP) V opportunistic fund, which closed last year with 50 percent more equity than was originally targeted, would not be required to split their time.
PAG would not comment.