Deciding what terms to offer investors when tabling a real estate fund is a challenge for any fund manager. Everything from fees to the fund’s investment parameters get scrutinised before the investors read a thing. At London-based Grosvenor, the GP equity commitment is also one item poised to change.
The real estate firm, owned by the Duke of Westminster, sees 2010 as a year of significant growth in Asia, particularly in terms of launching new investment funds.Nicholas Loup, the company’s chief executive for Asia, said the capital commitments it makes to new vehicles should be stretched to enable such growth.
“As a private company our equity is limited by nature,” he said. “We are trying to stretch our capital to do more things.”
First on the agenda is Japan, followed by a second China vehicle. Grosvenor is currently drawing up plans for the Japanese real estate fund and is expected to start fundraising for the vehicle in the first quarter of next year.
It is planning to raise $500 million in equity to invest across the residential, office and retail sectors. Loup said a first closing could happen within 12 months.
However, the firm’s equity commitment to funds is currently under review. Loup said in the past, Grosvenor tended to commit up to 10 percent of its own capital to funds but is now looking at a commitment closer to 5 percent. “We feel a 5 percent commitment is quite sufficient for a managing partner,” he said. Loup said the firm would table the notion with its investors when it starts fundraising.
On Japan in general, Loup said: “Japan is one of the markets in the region that had adjusted significantly across the board. We think there is a cyclical opportunity starting merging to start investing again.”
PERE asked fund placement agents Mounir Guen and Mitchell Sikora, chief executive officer and managing director of MVision, for their views on Grosvenor’s proposal to reduce its GP co-investment from 10 percent to 5 percent
Mounir Guen: When you consider private equity GP commitments are typically 1 percent then 5 percent is still a lot of money.
Mitchell Sikora: They are creating more products and therefore would have less money to go around. LPs will care most that they are aligned with the funds they are managing. I think an LP will look at this and say “they still have a lot of capital committed and they are aligned with us” and that is really the important issue.
Guen: The launching of different products [in close proximity] is a different issue. On the private equity side it is very much frowned upon right now.
Sikora: Yes, however on the real estate side there tends to be more of an understanding of GPs having different products for different geographies and different asset classes. It is easy to see why an investor would want to invest in one and not the other and not have an issue with the manager running both.