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ASIA NEWS: Asian relativity

Angelo, Gordon & Co currently is on course to deliver gross IRRs of about 18 percent and 1.5x equity from its first Asia opportunity fund, AG Asia Realty Fund I. And with a net IRR of about 13 percent, the fund is set to under-deliver on the targets it had promised as it closed the vehicle with $526 million in 2006.

However, factor in one global economic downturn and numerous failures to return anything at all by other fund managers with vehicles of the same vintage or later and the New York-based alternative asset management business has succeeded where many of its rivals haven’t – by holding a sizeable final closing on its subsequent effort. Indeed, the firm becomes the first in Asia this year to hold a higher final closing for a follow-up vehicle than it did for its first.

Last month, the AG Asia Realty Fund II closed on $625 million of equity commitments from investors, including pension funds, endowments and sovereign wealth funds across Europe, the Middle East and indeed Asia. A prime reason for the commitments? Simply put, the returns of Fund I have fared better than many of its rivals.

One market observer said: “The return of the first fund was below original expectations in terms of what it set out for, but they are fairly respectable given the environment.”

The investor community obviously agrees. In a document from the Oregon Investment Council, in which it recommended a $100 million commitment to the fund, the pension plan said Angelo, Gordon’s performance was “competitive when compared to fund level returns of other pan-Asia real estate strategies of the same vintage years”. Oregon described Angelo, Gordon as having a “seasoned team with operating experience” and a “proven ability to navigate cycles.”

Wilson Leung, Angelo, Gordon’s head of Asia, wouldn’t discuss fund returns. However, he told PERE that, although there were a number of repeat investors in the fund, there was significant new LP presence and that should indicate how the firm’s Asia efforts have been regarded. “This has come as a result of a strong track record in the region over the last couple of years, when it was difficult for the real estate sector in many geographies,” he added.

The new Angelo, Gordon fund will have a maximum firepower of $800 million, including equity from some of its other investment vehicles that have options to co-invest with the new fund. Despite the increased resources at its disposal this time around, Leung noted that the investment remit will remain similar to that of the first fund.

“We don’t have specific allocations, but I expect 50 percent or more will go to China, about 30 percent to Japan and the rest to Korea,” Leung said. “That said, we indicated a similar geographic allocation for the last fund and ended up investing most of the capital in China, where we saw the most attractive opportunities.” 

Oregon on Angelo, Gordon in Asia

At a meeting of the Oregon Investment Council in July, the pension committee relayed why it wanted to back Angelo, Gordon for its second Asia effort. Here are some of the reasons:

• AG Asia Realty Fund I is projected to return a net IRR of approximate 13 percent (18 percent gross IRR) and 1.5x equity — lower return than projected but competitive when compared to similar vintage funds.

• Has invested approximately $800 million of equity in Asia through 29 deals since 2005.

• Has realised more than 70 percent of transactions globally since its formation in 1993, producing a gross IRR of 21 percent.

• Uses low leverage, typically 55 to 60 percent globally. China leverage expected to be closer to 30 percent, while Japan is higher at between 50 percent and 60 percent.

• “Seasoned team with operational experience”.

• “Proven ability to navigate cycles” in sectors that include land, residential and hotels.

• Benefits from “vast off-market deal flow”.