PGIM raises $217m in third-party capital for Asia fund – Exclusive

PGIM Real Estate has raised $217 million in equity from third-party institutional investors for its debut pan-Asia open-end core fund.

The real estate investment business of PGIM, the global investment management business of US-headquartered Prudential Financial, has raised $447 million for PGIM Real Estate Asia Core, including $230 million in seed capital from the firm’s affiliates in the US and Japan.

The third-party capital raise comes 30 months after the firm held a $80 million first close for PGIM Real Estate Asia Core, according to a March 2017 SEC filing.

Benett Theseira, head of Asia Pacific for PGIM Real Estate, told PERE the firm initially approached affiliates to set up the fund and acquire a seed portfolio. He said the firm only started actively marketing the fund to external investors last year.

Since its inception, the fund has invested in a $290 million portfolio of four seed assets in Tokyo, Seoul and Sydney across the multifamily residential, office and retail sectors. The fund will target investments in Japan, Australia, Singapore, Hong Kong, South Korea and China, across the office, retail, industrial and residential sectors.

PGIM Real Estate’s interim target for PGIM Real Estate Asia Core is to reach $1.5 billion in gross asset value within three to five years. PERE understands the fund will target gross returns between 8 to 10 percent. In terms of the fund structure, the fund will have a 3-year lock-up period for initial investors, given its inception stage.

With the launch of the Asia vehicle, the firm has completed its global suite of open-end core real estate funds. This July, it raised €304 million for European Core Diversified Property Fund and in July 2017 it also launched an open-end debt fund in the US. According to PERE data, the 2017-vintage PGIM Real Estate US Debt Fund is $1.16 billion, including a $70 million commitment from the San Mateo County Employees’ Retirement Association, a US public pension.

Discussing the general return outlook for open-end core products in Asia, Theseira said: “Compared to some of the core funds in the US and Europe, the projected returns are marginally higher in Asia on a total return basis because there is a higher growth potential over a longer term in Asian markets. The asset level yields are fairly similar in all the three regions.”

Open-end funds are a less common investment product in Asia compared to the other regions and the funds are limited in number. M&G Real Estate’s open-end core fund in Asia has reportedly reached $5 billion in size and is the largest product of its type in the region. In addition, Invesco, JPMorgan Asset Management, Morgan Stanley Real Estate Investing and more recently Nuveen Real Estate have established Asia-focused open-end funds.

However, the nascency of the strategy is not making investors demand a premium for investing in a low risk/return core strategy in a region historically considered to be an opportunistic investment market.