Ping An Trust, one of China’s largest trust companies, is ready to work with institutional capital on its real estate deals. That was the central message from a conversation with Lee Hing Yin, senior executive director of its real estate investment department, shortly after he took part in PERE’s China Forum in Beijing in July.
The subsidiary of Chinese insurance giant Ping An has built up a sizeable portfolio of property loans and direct investments in China valued at RMB49.7 billion (€6.35 billion; $7.81 billion) since its inception in April 1996. Its capital has come from a combination of balance sheet money, proceeds from its parent company and, common to all Chinese trust companies, retail money from Chinese high-net-worth individuals.
During this time, Ping An Trust has built up a real estate division of approximately 100 professionals encompassing the gamut of real estate expertise, from loan origination to asset management. It is precisely that factor that Lee believes should set it apart from most of the other 66 trust companies in the eyes of prospective institutional partners.
“Apart from serving our own insurance company and high-net-worth individuals, we want in the longer term to be offering assets to institutional clients – national insurance funds and pension plans in China, for example,” Lee told PERE.
Ping An Trust wants to offer its products, typically fixed-income vehicles that offer higher rates of return than can be offered by banks, to domestic institutions first, although a possibly greater step will come via partnerships with international institutions. Lee revealed that initial conversations already have occurred this year with some foreign institutions, aimed at determining how the trust positions itself and its capital alongside its new bedfellows on overseas ventures.
Ping An Trust’s ambitions don’t stop there, either. Lee said it also is evaluating opportunities to invest as a limited partner in international real estate funds, both to diversify its offering to its own investors and also to ingratiate itself with international institutions, with a view to forging future collaborations. “We have the capability of talking with these people,” Lee said. “Other trusts can’t say that.” 
Apart from serving our own insurance company and high-net-worth individuals, we want in the longer term to be offering assets to institutional clients
Lee Hing Yin, Ping An Trust
While Ping An Trust is ready to embrace institutional capital more readily now, private real estate investment managers actually have courted China’s trust companies for a few years now and it is not difficult to see why, given the sheer growth and current heft of a sector that collectively represents a massive RMB5 trillion of assets. According to a report published in July by KPMG, China’s trusts registered year-on-year asset growth of 58.25 percent last year alone.
China’s trust companies, widely referred to as the country’s ‘shadow banking’ sector, have enjoyed lighter regulation compared to its banks, and that is part of the attraction for the wealthy Chinese. When the Chinese government tightened its grip on bank lending to developers in 2010 in an effort to stabilise its heated property markets, the trusts were able to capitalise, issuing debt at higher margins or making private equity-style direct investments in developers or properties unable to cope with tougher borrowing conditions. Oftentimes, trust real estate products were able to generate returns of between 12 percent and 15 percent, KPMG reported.
Although government intervention has seen the number of newly issued real estate trust products dip of late, from 49 percent of all trust products in June 2011 to just 16 percent in December, that has not prevented some early partnerships from being forged with institutional investment managers, including international ones. One example to make headlines in May was New York-based Tishman Speyer, which raised RMB1.2 billion for a single-development fund thanks to retail capital from Hwabao Trust, a subsidiary of Shanghai Baosteel Group, the Chinese iron and steel conglomerate.
Ping An Trust has yet to crystalise any collaborations of its own, although an effort to launch a residential development fund with Paris-based AXA Real Estate Investment Managers is still on the table after the two parties signed a memorandum of understanding back in 2009. “It is still our intention to work with them,” Lee said.
That would be a welcome message for AXA REIM, whose Asia head Frank Khoo told PERE when the plans were launched: “It is key for us to be able to unlock that retail money.” Given the words of Ping An Trust’s Lee, China’s trust companies feel the same way about institutional capital.
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