ASIA NEWS: Citi's new direction

Citi Property Investors (CPI) is taking on today's trickier fundraising environment for Asian real estate with a change in strategy.

The firm, led globally by president and chief executive officer Roger Orf, is now prioritising fund management over fundraising. The fallout of this strategy switch has seen the departure of Citi's head of Asia Pacific Investments, David Schaefer, and the cancellation of the firm's second Asia real estate opportunity fund, CPI Capital Partners Asia Pacific II.

Neither Orf nor Schaefer would comment on what happened but PERE has learned that having raised close to $400 million in equity for the follow up to the CPI Capital Partners Asia Pacific fund, which closed on $1.29 billion in February 2007, the firm has instigated a process to hand back the equity to an investor pool principally made up of European and US institutional investors and high-net-worth individuals. This process is expected to be completed by the autumn.

CPI started raising equity for the fund in early 2008 and held a first close last June. But sources close to the firm said it encompassed problems increasing its equity haul following the collapse in investor sentiment after the failures of Bear Stearns and Lehman Brothers.

Its problems were exacerbated in March with the departure of a trio of senior placement agents within Citibank, who had contributed to the raising of the first Asia fund, to Credit Suisse Asset Management.

Orf, Schaefer

These events culminated in an agreement last month between Orf and Schaefer for the latter to leave the company. According to those close to the matter, Schaefer, whose skill set was regarded as more focused on raising capital and growing fund management platforms than on asset management, did not fit into CPI's revised strategy of focusing on managing out the assets of its first fund, and would not fit in with Citi's future plans. At the time of press, Schaefer has yet to agree a position with another firm.

The leadership of CPI's Asian real estate platform now rests in the hands of former head of India Ravi Hansoty, a man hired by Schaefer. Hansoty, who has a track record in asset management, was appointed Asia chief immediately after Schaefer's departure and although his appointment is officially on an interim basis until the end of the year, it is understood he will keep the position full time.

Schaefer joined CPI from Macquarie Bank, where he was head of property for Asia, four years ago. Hired by former president and chief executive officer Joseph Azrack, who left to join Apollo Management in August to be replaced by Orf, Schaefer was tasked to grow the firm's Asia platform, which resulted in a division comprising approximately 30 staff across offices in Shanghai, Mumbai, Tokyo and Hong Kong.

The CPI Capital Partners Asia Pacific Fund is nearly fully invested. It has purchased predominantly residential properties, serviced apartments and hotels across India and China but has also purchased offices in Hong Kong, Taipei and Delhi and retail in Taipei and mainland China.

The cancelled second fund, which was originally slated to grow to approximately $1 billion in equity, has yet to make any investments, making it easier for CPI to return the equity and all associated fees and expenses. According to those close to the firm, it is still possible that a second vehicle will eventually surface, however nothing is expected to happen until it feels the equity raising markets have returned.

Now, CPI in Asia is effectively an asset management-focused platform.