ASIAVIEW: New GPs wanted

Jonathan Brasse

Any delegate at last month’s PERE Forum: Asia who is thinking of setting up his own real estate fund management platform would have been heartened by what was said on stage during the last panel conversation.

Five LPs, either already invested in Asia real estate funds or seriously thinking about committing to Asia real estate funds, unanimously agreed they are keen to support qualified first-time fund managers.

One LP, Nirav Kachalia, managing director of investments at US and Asia-focused investment advisor to wealthy families, individuals and institutional investors, Morgan Creek, was so keen to stress his support for newcomers he told delegates his firm had backed 70 first-time funds. Furthermore 60 percent of the managers backed by his organisation were through funds one, two or three.

Doug Coulter, vice-president and head of private equity for Asia Pacific at private equity fund of funds business LGT Partners, went one further when he said the firm’s best performances on balance had come from backing first-time funds, albeit private equity funds. Coulter told delegates the firm, which had only made minor investments in real estate vehicles in Europe before now, was seriously considering a more extensive Asia investment programme.

The other three participants, including the panel chair – another LP – made similarly encouraging remarks.
This is good news for anyone thinking of spinning out to start a new firm. In the last three months alone, PERE has broken multiple news stories of individuals flying their own fund management flags for the first time.

In December, we revealed that Hong Kong-based Pamfleet Group was to make its commingled fund debut. The launch of its Pamfleet Real Estate Fund, targeting $330 million, comes after the former senior executives of Hong Kong bank Jardine Fleming cut their teeth producing healthy returns through co-investments alongside partners, including the Morgan Stanley Real Estate Investing.

The following month, we learned Macquarie Capital Advisors’ former head of capital raising, Rachel Tan, had quit the Australian financial services business to set up Tan-Eu Capital, a fund management business with offices in London and Hong Kong. Her debut vehicle, SOTAN, a joint venture with Hong Kong-listed SOCAM and a subsidiary of the Shui On Group, will target investment in first and second tier, residential-anchored mixed-use developments.

And at the conference itself, we learned of another individual launching a debut fund. After a considerable tenure at the helm of Morgan Stanley’s real estate investing business in Japan, Fred Schmidt had also quit to launch a debut effort. More details of his operation will become clearer when his gardening leave expires at the start of this month.

PERE has broken multiple news stories of individuals flying their own fund management flags

Jonathan Brasse

Each of the aforementioned first-time fund managers are examples of individuals making the break from larger organisations (of course, Pamfleet’s fund launch comes almost a decade after its founders made their break). But other kinds of debut fund launches are also happening in Asia. Consider Fortress Investment Group, which, while clearly no debutant in fund management, or even real estate fund management, last year marked its debut in Asia real estate funds. Under the leadership of Tom Pulley in Tokyo, the firm has already found traction with its first effort. Targeting $800 million, the Fortress Japan Opportunity Fund had corralled at least $275 million (amount announced during an August earnings call). Furthermore, Fortress has already demonstrated its capacity to capture opportunistic deals in possibly the hardest Asian market to crack – Japan – when last year it bought 1,200 home loans from subsidiaries of collapsed bank Lehman Brothers.

Likewise, ex-Colony Capital Asia head, Grant Kelley, has agreed to merge his start-up business formed at the end of 2008, Holdfast Capital, into Leon Black’s Apollo Global Management. Again, not a new platform, but like Fortress, still a vehicle that should by rights have a Roman numeral one next to its name.

One often hears that many investors avoid “first-time funds” out of a desire to only invest with groups that have proven track records. However in a less mature market like Asia there simply aren’t that many Fund IIIs out there. In addition, in today’s turbulent real estate market, investors are keen to back talented groups that are not saddled with disastrous portfolios, and who will pursue fresh strategies informed by the painful mistakes of the last cycle.