ASIA NEWS: A widening choice

The best evidence of investor appetite for a particular strategy is the capital committed to it. However, when the number of funds offered by managers for the strategy increase, that too is a good indicator.

Last month, PERE revealed that Pramerica Real Estate Investors (PREI) Asia had cast its net to capture S$500 million (€308.7 million; $400 million) of institutional capital for its Pramerica AsiaRetail Fund, a core open-ended real estate fund dedicated to shopping malls in Singapore and Malaysia. It was the latest in a growing list of managers tapping investors for capital to deploy in lower-risk strategies in the region.

Having successfully combined and converted two closed-ended development funds in 2011, PREI is ready to fundraise again. The firm is confident its current portfolio of ‘irreplaceable’ assets and the prospects of finding more like them will entice institutions to take on core property in a region historically associated with higher risk than in the West.

“This portfolio is very stable,” said Benett Theseira, managing director for Southeast Asia at PREI. “It is producing income and ideal for institutional investors to hold long term.” Investors can expect an annualized return of between 8 percent and 10 percent from a healthy mix of income and growth, he noted.

International investors increasingly are warming to the notion that accessing such real estate in the region on a liquid basis is both credible and, importantly, a scalable proposition. Furthermore, there is mounting evidence suggesting investors are benefiting from diversifying their low-risk real estate portfolios from Europe and North America. According to data provider IPD, core Asia-Pacific funds returned 7.9 percent in the past year, more than those focused on Europe (1.4 percent) and within reach of North America (9.9 percent).

UK and German investors already have gotten comfortable with the idea, and the message is getting through stateside. In a document from the Los Angeles County Employees’ Retirement Association recommending a $100 million commitment to a recently launched fund by Invesco Real Estate, John McClelland, principal investment officer for real estate, wrote: “Staff have become increasingly impressed with the institutional quality of core properties in the region as well as the diversification benefits of investing in multiple economies.”

Choice breeds competition

The first core open-ended real estate fund focused on Asia was the Asia Property Fund, which was launched in 2007 by PRUPIM, part of UK insurance giant Prudential’s M&G asset management business. Since then, PREI and Invesco have come to market, as have private equity real estate firm MGPA and German asset manager SEB Asset Management, the latter two offering purely to German institutions.

With this increased competition comes choice for investors. “We have a sense of the competition now,” admitted Erle Spratt, the fund manager of PRUPIM’s fund. “For us, it’s a good thing others have set up these kinds of vehicles. That demonstrates the allocation makes sense to investors.”

PRUPIM has about $100 million in dry powder to invest, and Spratt reckoned there was scope within the fund’s existing resources to grow assets to $2 billion from $1.5 billion currently before it has to approach investors again.
As with all open-ended funds, investors have every opportunity to get out. PRUPIM offers monthly redemptions coinciding with monthly mark-to-market valuations. Others offer quarterly trading points, and it is in this minutia that investors might discern one offer from the next, particularly as competition stiffens.

Geographical reach also may play its part. Invesco, for instance, plans to invest in China in the belief certain of its markets should be considered core now. Other managers, including PRUPIM, do not share that belief.

At some stage, China’s most sophisticated markets and those of Indonesia, Taiwan and Malaysia widely will be considered core. That likely will precipitate many more real estate funds looking for investment.