PAG raises $1bn for its biggest ever Asia RE fundraising effort – Exclusive

The Hong Kong-based private equity real estate firm is back in the market with a $2bn core-plus/value-add vehicle.

Hong Kong-based investment manager PAG is understood to have raised around $1 billion so far for a pan-Asia core-plus/value-add commingled real estate fund.

PERE understands the firm is targeting to raise $2 billion in total for the vehicle.

PAG’s latest fund, if closed on target, would be the firm’s biggest ever pan-Asia commingled vehicle across different strategies. PAG declined to comment on fundraising.

In 2016, the firm closed its debut Asia core-plus fund at $1.3 billion, surpassing the original $1 billion target it set. The PAG Real Estate Partners fund, which received commitments from institutional investors including the European insurer Allianz and the Dutch pension fund manager PGGM, had an investment strategy involving nine gateway cities in Asia. One of the fund’s early investments was the purchase of GE Japan Corporation’s portfolio of 26 assets in Japan.

While that fund was originally introduced with a core-plus mandate, it is understood to be currently generating net returns of between 13 and 16 percent, closer to value-add returns, according to one person familiar with the investments.

A successful capital raise would see PAG continue strong fundraising form. The PAG Real Estate Partners fund was followed by a $1.9 billion capital haul for Secured Capital Real Estate Partners VI, the latest in its flagship series of opportunistic funds, last September. As PERE reported at the time, the firm ended up increasing the hard-cap for that fund to $1.9 billion from $1.7 billion following excess demand from investors.

This year so far, there have been no other core-plus funds raised in Asia-Pacific, according to PERE data. Meanwhile, $3.21 billion has been collectively raised via three value-add vehicles. In contrast, $640 million was raised last year via two core-plus funds, while six value-add funds accounted for $2.14 billion in total capital.

Growing institutional investors’ preference towards higher risk and return strategies globally was revealed in the ANREV/INREV/PREA’s Investment Intentions Survey 2018, in which a majority of European and North American investors agreed that value-add investments have better risk-adjusted performance prospects than core investments in Asia-Pacific. For instance, as many as 66.7 percent of the European investors which were surveyed favoured value-add investments, while only 11.1 percent opted for core investments. According to the findings based on responses from over 300 industry participants, core investment was no longer viewed as the best strategy for risk-adjusted performance, given the challenges of finding quality assets at this lofty point in the cycle.