ASIA NEWS: Tip of the iceberg

Last month’s commitment by The Townsend Group to Fortress Investment Group’s latest Japan fund was only the second primary fund commitment made by the firm in Asia since opening in Hong Kong in 2010.

Yet, it was the tip of the iceberg in terms of how much equity Townsend has invested on behalf of investors into Asia over the past decade.

Many of those commitments were made on behalf of institutional clients and occurred under the radar given their private nature. However, in an interview, the Cleveland-based consulting and investment management firm said it had invested $4.5 billion in the region on behalf of more than 50 investors. Over the last decade, the firm committed to more than 30 different transactions, including investments in primary funds, secondaries, club deals and joint ventures in China, India, Japan, Australia, Hong Kong, Singapore, Indonesia, Malaysia and Thailand.

Townsend’s most recent investment involved writing a $160 million cheque to the Fortress Japan Opportunity Fund II. That followed a $100 million commitment to Hong Kong-based CITIC Capital’s CITIC Capital China Retail Properties Investment Fund in November. In addition, the firm is known to have made an $80 million equity investment last year into a Japan logistics portfolio acquired from its lender Goldman Sachs, although Townsend would not comment further on that deal. Nevertheless, it is understood it was one of two co-investments, five secondaries trades and two primary fund investments executed by Asia head and principal Nick Wong and his team since launching the Hong Kong office.

Referencing the time before Townsend hired Wong from ING Real Estate Investment Management to lead its new Asia division in 2010, fellow principal Adam Calman said: “We underwrote deals using our sector specialist team in the US, which still is in place today. That’s important, as it shows our corporate DNA runs over a decade in Asia.”

Last August, the senior management of Townsend sold a 70 percent stake of the company to Aligned Asset Managers, the portfolio company of Chicago-based private equity firm GTCR, and this has given the firm renewed firepower. Calman said the extra resource afforded by that deal means Asia will become an increasingly important region for the firm. Indeed, 15 percent of Townsend’s global deal pipeline is in Asia and, with increasing enthusiasm by its investor base for more exposure to the continent, that percentage should grow. “We’ve seen increased appetite,” he added.

In the short term, Townsend has earmarked $600 million for investment in Asia over the next two years, and the firm wants to be considered one of the first calls for anyone seeking capital. “In a transaction-starved environment, that is key as the better deals aren’t marketed widely,” Calman said.

Fortress evidently, and successfully, did just that, bringing Townsend into its $550 million first closing for its second Japan opportunity fund. The firm plans to corral $1 billion for the vehicle, and Townsend’s Wong doubts that will be a problem given the performance of its previous Japan fund, which closed on $800 million in June 2010. That fund currently is projecting IRRs north of 30 percent.

“[Fortress’ strategy] is the right one for Japan at this moment,” Wong said. “They will put their capital to work very soon and have a strong pipeline.” Likewise, Townsend believes it has the right strategy and will continue to put its capital and that of its clients to work in Asia.