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Partners Group buys into China’s troubled Trophy fund

The Swiss private markets investment firm has purchased 12 percent of the Chinese property fund’s units, providing 31 of the vehicle’s 145 investors an exit.

Partners Group, the Zug, Switzerland-based private markets investment firm, has bought the equity positions of 31 investors in one of Asia’s most controversial funds.

Venator Real Estate Capital Partners, which manages the Trophy Property Development fund, a China-focused development fund which attracted $1 billion of equity from 145 investors prior to the global financial crisis but was marred afterwards by disputes between the manager, its development partner and its investors, announced it had facilitated the sale of the units.

The sale, which closed at the end of June represented $120 million or 12 percent of the original equity commitment to the seven year vehicle. It means that Partners Group is now the second largest investor by commitments in the fund. Partners is understood to have made the purchase via funds managed by its dedicated, specialist secondaries team.

It is unclear at this stage at how just much of a discount to their original valuation the fund units traded. However, PERE previously reported that the equity of the vehicle had been written down to approximately $450 million prior to a restructuring which saw management change and which is to see minority stakes in five developments Shanghai, Wuhan and Chongqing swapped for a majority stake in one development in Shanghai. The asset swap is slated to complete in the third quarter, Venator said.

The firm said it initiated the process in December last year, appointing broker Tullet Prebon to run and operate it, after approximately 40 LPs representing $200 million of the vehicle’s units, registered interest in liquidating their positions. Their interest came once the fund’s asset swap had entered definitive documentation and its management was restructured, enabling them clear sight of what they had to trade.

At the same time, Venator said, approximately 20 parties, both existing investors and third party investors, registered an interest in acquiring new or further commitments in the fund. Venator said that sparked several rounds of bidding.

PERE reported in September how Pacific Alliance Group, the Hong Kong-based investment firm, previously had made an approach to buy the entire fund prior to the restructuring and asset swap. Its approach was rejected.

Venator is a private real estate investment firm, spun-out from the fund’s previous manager, the Hong Kong-based hedge fund manager Winnington Capital. It is led by ex-Warburg Pincus Asia real estate head Philip Mintz, who said in the announcement: “The restructure of our LP base has allowed us to bring a first-rate investor on board while at the same time keeping our original keystone investors. It proves that our efforts to set the fund on a growth trajectory by reducing management fees, increasing transparency, and restructuring the assets, is building value and confidence in the fund.”

Venator said future secondary sales from the Trophy fund could happen during its lifespan.

The fund – one the biggest by equity commitments of its kind in China – ran into issues after it became apparent that spiralling costs, development delays and conflicting approaches to development caused clashes between Winnington and the development’s developer Shui On Land. When it became clear the fund would not exit from its investments within its original seven-year life, the two sides, and the fund’s LP base, appointed advisers to secure as clean and as timely exit as possible for its investors.

The result was the asset swap and management restructure.