ING Real Estate Investment Management (ING REIM) became one of the first firms in Asia to take advantage of LP unrest when it was awarded the management of New City Asia Fund Management's $772 million Asia real estate opportunity fund.
The mandate, awarded in March but announced by ING REIM last month, followed a beauty parade of potential asset managers after New City's 27 LPs called for the management to be switched. ING has since rebranded the fund, the Phoenix Real Estate Fund, bringing its assets under management in Asia to almost $5 billion.
The issue of managing the New City Asia Opportunity Fund was raised after New City Asia Fund Management's parent company, Tokyo-based New City Corporation, found itself in financial difficulties.
In February, New City fell into negative net worth, with its capital base dropping below Japan's statutory minimum requirement. In an effort to stabilise the business, the firm agreed in April to offload the JREIT, New City Residence Investments Corp, to Dallas-based Lone Star. That was promptly followed by the management business of the New City Asia Opportunity Fund.
While release triggers in situations of potential insolvency are commonplace within LP agreements with GPs, ING REIM's Asia chief executive officer Richard Price said no such measures were formally executed. Price declined to reveal details of any triggers in the New City fund, but they usually include the right of LPs to terminate management agreements with a GP should it become insolvent.
Price said: “[No triggers were actually needed] but they may have [been] and New City wanted to be ahead of that.” One LP in the fund said that such a measure had been put in place in case ING REIM suffers a similar fate to New City.
As part of the mandate, ING has employed 13 New City staff on both a permanent and temporary basis to help manage the vehicle's assets. The Phoenix fund was 76 percent invested at the time of the deal.
ING has not invested any equity into the 10-year fund, nor was it previously an LP in the vehicle, but Price said that it would commit capital to future investments when the fund deploys the remainder of its equity. The Phoenix fund closed in May 2008 and has invested in sectors including residential and industrial. The investments are predominantly in Japan, but also in China and South Korea. It is targeting an IRR of more than 20 percent.
ING has taken a bearish stance on new opportunity funds going forward. It shelved plans for its first global vehicle in February, but, looking ahead, Price said future opportunistic endeavours could materialise with more of a country specific or regional focus. As part of this strategy shift, the firm has recently started raising a second China opportunity fund targeting $750 million in equity.