ASIA NEWS: China’s next big player

Grosvenor, the private London-based firm, stated its intention to grow its fund management division in 2009. In an interview with the Financial Times, chief executive Mark Preston outlined a three-pronged strategy. One was growth for the division via corporate investment, noting that he was looking for tie-ups that came around “once in a generation.” Another prong was growth in Asia.

Three years later, the Duke of Westminster’s real estate company has made an investment that meets both of those objectives. It has formed a joint venture real estate investment management business with China’s second largest asset manager, Harvest Fund Management, geared to putting both institutional dollars and renminbi to work in property markets across the country.

In so doing, Grosvenor and Harvest could be creating one of China’s largest private real estate investment players as the combination brings together a fund management division responsible for more than £5 billion (€6.25 billion; $8 billion) of assets globally with a large Chinese wealth management organisation behind an altogether bigger $37 billion of assets across various mutual fund and fixed-income vehicles.

Harvest Real Estate Investments (HREI) will offer business lines previously untapped by both sides. Although Grosvenor has invested in China before, the joint platform is expected to both increase the firm’s exposure while simultaneously introducing it to Chinese institutional and retail capital. For Harvest, the venture sees it invest directly into real estate for the first time and gain exposure to both Grosvenor’s institutional investor network and, in time, its global investment funds.

After almost one year of discussions, the parties have agreed to a structure that would see HREI be 50 percent owned by Harvest and 50 percent owned by Grosvenor, the majority of which would be the firm and a minority stake for its management. Capital commitments to the platform to meet Chinese regulatory requirements for investing Chinese institutional capital, among other expenses, already have been made and, according to its board directors, both sides will co-invest meaningfully in the vehicles HREI brings to market. 

Neither side is passively involved either, with Grosvenor placing Jeffrey Weingarten, chief executive officer of Grosvenor Fund Management, on the board alongside Morgan Laughlin, the company’s Asia managing director. Equally, Harvest Fund Management’s engagement is personified by the inclusion of its chief executive Henry Zhao and Lindsay Wright, chief executive of the Harvest division responsible for the firm’s stake in the venture, Harvest Alternative Investment Group.

In charge day-to-day is Rong Ren, the recently-departed chief executive of Harvest Capital Partners, the real estate investment management arm of state-owned conglomerate China Resources Group (not related to Harvest Fund Management). His initial team of 20 professionals includes four from Grosvenor Fund Management’s China division, as well as investment professionals, financiers, asset managers, capital-raisers, business development and legal experts. 

No series

“A joint venture is not something Grosvenor Fund Management has entered into before, and we certainly did not enter into this one lightly,” Weingarten pointed out. “But the combination of the cultural comfort we had with Dr Zhao’s team and the expertise that we are partnering with in Rong Ren’s team made it seem the ideal vehicle to provide our investors around the world with opportunities to invest in Chinese real estate.” However, he added: “I don’t know I’d say this is the start of a series.”

For Harvest Fund Management, HREI will provide an additional platform to service its existing institutional investors in China and to reach new ones. Since 2006, Zhao has been working closely with Chinese regulators, including the China Insurance Regulatory Commission (CIRC), in anticipation of an inflow of capital from the country’s insurers. Since September 2010, the CIRC has permitted insurers to not only invest in real estate but, crucially, overseas as well.  This fresh capital source is estimated to be $660 billion and growing.

Zhao believes China’s real estate markets are on the cusp of change as investors progress from hoarding land to engaging more in asset class selection and financing opportunities, and he thinks institutional investors in China, like their international counterparts, will be attracted to highly defined investment vehicles. “Therefore, we need a special team and global experience,” he said.

What about HREI’s investing strategy? The directors are keeping their cards close for now, but Ren said: “The business model for Chinese real estate is changing, and that goes for developers, investors, trust companies, banks and the government. We’ll announce our fund strategies soon but, looking today, it will need to be different to products or strategies launched in the past.”

Market onlookers are bound to be intrigued to see the coming together of one of the UK’s oldest property businesses (300 years and counting) and one of China’s fastest growing firms (Harvest formed in 1999) and learn more about their strategy. What they do know today, however, is that Chinese private real estate investing has a big, new player.