ASIA NEWS: The path to Pudong

When The Blackstone Group announced early last month it had cut the ribbon on its first renminbi-denominated fund management platform, it would be only a matter of time before real estate managers began discussing this incoming source of capital for their vehicles.

The tie-up with the Government of Pudong New Area to establish the RMB 5 billion (€489 million; $732 million) Blackstone Zhonghua Development Investment Fund was agreed in August. It was around the same time China’s government granted permission for insurance and pension providers to invest stakeholder capital into the sector, giving serious rise to the notion of real estate platform is considering such a move.

Indeed Blackstone’s real estate platform is among them. One source close to the firm told PERE that while its foray into local currency vehicles is focused on private equity – although often implicit in a Chinese company’s value is its real estate – the tie-up with the east Shanghai financial district is a potential “green light” that could see RMB denominated real estate funds raised at a later stage.

“That would be their hope,” the source said, “They now have the green light to raise money from the Chinese financial district in RMB. The challenges for offshore investors has always been offshore structures and government approvals. There are a lot of things that were very complicated. This could simplify things and open up transactions that aren’t necessarily open to everyone else. That’s a big advantage.”

Whether private equity real estate funds gain as much traction with Chinese investors as their private equity cousins, remains to be seen.

Richard Price, chief executive officer of ING Real Estate Investment Management in Asia, said: “No one knows how Chinese institutions will respond to the concept of domestic private equity funds in all asset classes and there remains a great deal of uncertainty as to which of the regulatory bodies will have jurisdiction.” He admitted that with real estate now an “approved” asset class for Chinese institutions, his firm is currently “actively engaged” in talks with them to participate in its investment strategies.

But he added: “I doubt that all firms will follow suit in the short term, as not all major firms have an investment infrastructure in China.”

An existing presence in China, however, is not the whole solution. Stanley Ching, managing director and head of real estate at Hong Kong-based alternative investment firm CITIC Capital, believes that fundamental to the success of RMB investment, in the short-term at least, is an evolution in the way the Chinese regard investing in real estate through private equity firms in the first place.

“People are still cautious about private equity in real estate. It’s still pretty new to China,” Ching said. “It is easier for people to make their own investments in real estate currently so a lot will depend on the manager’s track record and capability.” But he said a sea-change is eventually inevitable. CITIC Capital does currently run RMB-denominated investment vehicles elsewhere in its business but real estate will, in time, take its turn.

“More market participants in the real estate sector will make the sector more efficient,” Ching said.