ASIA NEWS: Gaw’s diligence

While the increasing prominence of domestic capital in China’s real estate markets is worrying many managers of international equity, one man remains unconcerned.

As he nears the final close of his firm’s third opportunity fund, Goodwin Gaw, co-founder of Hong Kong-based firm Gaw Capital Partners, explained that, unlike some of his rivals, he was not afraid of domestic buyers.

“Part of the complaint in China is that it is harder to do a lot of due diligence because information is not readily available,” said Gaw. “But I argue it is absolutely readily available, they just have to know how to access it.” Citing banks, lawyers and government officials as ideal sources of information on assets, Gaw believes it is possible to compile a complete dossier on a target acquisition prior to tabling a bid.

The notion of international fund managers being edged out of China’s investment market was prominent at last month’s PERE Forum: Asia conference in Hong Kong. Gaw, who addressed the matter on stage, said due diligence periods in China were effectively translated by local sellers as options to buy and were therefore unpopular.

He said: “By asking for a due diligence period after making a bid you are affectively asking for an option to buy then if the market moves the deal is off. Local sellers say “no way” to that. That is why when I make a bid, I have the due diligence done and I’m not starting from scratch. That’s how it is done here.”

Having raised more than $1 billion across two China opportunity funds since the firm’s inception, Gaw Capital has just raised $200 million for its third, the Gateway China Real Estate Fund III. Launched in April 2009, the vehicle is expected to close on $500 million by the end of this month. The target investors in the fund, which is aiming for a 20 percent-plus return,  comprise US endowments and pension funds as well as sovereign wealth funds.

Gaw would not discuss the fund, but suggested the firm was keen to invest in residential assets and “mass retail”.
“I’m a big believer in China’s domestic consumption story,” he said. Referring to a statement made by Chinese developer Ronnie Chan at the conference that in the luxury retail sector in China there is only one winner per city, Gaw said: “Ronnie is largely right for that sector, but in domestic consumption, there will be many winners.”