ASIA NEWS: Flight of Fancy

Zain Fancy, the one-time rising star of Morgan Stanley Real Estate Investing (MSREI) in Asia, is back. Having settled his legal dispute with New York-based Och-Ziff Capital Management Group, which he joined for a multi-million dollar sum in 2008 and subsequently sued for withholding pay and stock, he now has his sights firmly on the future.

Fancy’s future is called Clifton Real Estate Group, a start-up niche investment firm through which he plans to raise and invest capital, initially on a deal-by-deal basis, from his base in Singapore. The plan is to target small to medium-sized commercial and residential property valued between $5 million and $100 million, he revealed.

Although he will lean on his opportunistic investing experience, sharpened while leading MSREI’s Asia unit for three years, Fancy emphasised that his aim is to deploy his skills in a market segment out of the direct reach of his former employers. “Most large funds and developers do not focus on smaller transactions,” he said. “I’m trying to find a niche.”

My growth plans are reasonable and not too ambitious
Zain Fancy, Clifton RE

That is not to say Fancy would ignore larger investment groups going forward. Positioning Clifton as a local partner for international capital, opportunity funds could easily become joint venture partners for Clifton, he envisaged. “Sometimes, we’ll be taking minority positions, and other times majority positions,” he said. “As such, my partners could be institutions, high-net-worth investors or property funds.” Returns are expected to be 12 percent per year or higher.

Clifton currently has between four and five transactions under evaluation. Depending on how these or others progress, the firm’s headcount could grow accordingly. “Having between four and five people by the middle of next year should be reasonable,” Fancy said. “My growth plans are reasonable and not too ambitious.”

Fancy’s journey

It’s been quite a journey for Fancy this past decade. Recruited in 1996 by former global head of Sonny Kalsi, he initially worked for Morgan Stanley’s mergers and acquisitions team in New York before relocating to Asia and jumping to MSREI in 1998. He returned to New York one year later but was tempted back to Asia in 2004, when he worked for then-Asia head Timothy Grady. According to one source, Fancy’s star began shining quickly and, when Grady departed to lead Merrill Lynch’s global real estate principal investments in Asia in 2005, he was regarded as the natural successor.

The following years were MSREI’s most-active investing period in Asia. One source recalled the condition of the platform during Fancy’s time at the helm: “In Asia, MSREI had invested about $10 billion of equity, realising an IRR of close to 30 percent. MSREI did well in China and India, and a lot of that should be attributed to Zain. He was really the main person driving the deal team day to day.”

Deal by deal, his new platform might well see the man once included in a 2007 PERE feature on rising stars return to the spotlight

Standout deals led by Fancy included a $130 million investment in Shanghai-based developer Shimao Property Holdings prior to its successful IPO in 2006. He also led MSREI’s $152 million investment in January 2007 in Mumbai developer Oberoi Realty, which underwent a successful IPO about four years later. In a third example, he led a well-regarded $100 million investment into Kowloon City Plaza and Paliburg Plaza in Hong Kong in 2004.

By June 2008, Och-Ziff had been impressed enough to offer a reputed $65 million to pry Fancy and senior colleagues Roy Kwok, Bharat Khanna and Anand Madduri away from Morgan Stanley in order to set up a joint venture called Och-Ziff Asia Real Estate. The move is understood to have proven particularly unpopular among certain ex-MSREI colleagues.

The situation became even worse when one of Fancy’s lieutenants, former China head Garth Peterson, was investigated and ultimately fired shortly afterwards for actions that “appeared to have violated the Foreign Corrupt Practices Act,” according to a Morgan Stanley regulatory filing. Kalsi and Andrew Yoon, then-chief financial officer for MSREI in Asia, were placed on administrative leave as a result, and some peers speculated Fancy would have suffered a similar fate had he remained with the firm, given he was Peterson’s line manager.

Och-Ziff terminated its partnership with Fancy, initially claiming the venture was not workable because it could not raise funds as a result of the Peterson investigation. Fancy responded by suing the firm in Singapore and in London. The dispute, PERE understands, was settled out of court.

Whether Fancy’s decision to sue Och-Ziff impedes his future plans is yet to be seen. With time on his side (he is just 37), he hopes to make a success of Clifton Real Estate, and his early track record in Singapore has boosted his confidence that success will follow. The transaction involved selling an asset at Queen Astrid Park for $28.3 million, which achieved a $4 million-plus gross profit within six months. Deal by deal, his new platform might well see the man once included in a 2007 PERE feature on rising stars return to the spotlight.