ASIA NEWS: Idyllic Hong Kong

Low risk and high return – it is the ideal proposition for institutional investors the world over. Sydney-based logistics developer and fund manager Goodman Group has a fund in Asia that has been providing its investors with such a blend since its inception in 2005.

The Goodman Hong Kong Logistics Fund was intended to return approximately 10 percent per year from investments in prime industrial assets across the former UK colony. Through an open-ended structure, the vehicle would focus on long-term investments that offer sustainable income streams from assets let to established occupiers, including third-party logistics providers and retailers.

Thanks to some positive market forces, active asset management and savvy sales, the Goodman Hong Kong Logistics Fund has outperformed, with returns between 15 percent and 20 percent per year. “I never expected the fund to deliver the returns it has,” said Adrian Baker, managing director of CBRE Global Multi-Manager, one of the fund’s investors. “The Goodman Hong Kong Logistics Fund has been one of our best performing investments, delivering ‘opportunistic’ style returns with a ‘core’ risk profile.”

Indeed, that is a primary reason why the Goodman Hong Kong Logistics Fund is oversubscribed, noted Phillip Pearce, Goodman’s managing director for greater China. Although he declined to confirm specific returns – “it’s a very private fund,” he said – he acknowledged that there have been attempts from certain large investors to acquire units in the vehicle and that these have been blocked by current investors gripping tightly to their positions. “People have tried to get into this fund but, when the stock comes up (for sale), it is taken up by existing investors,” he added.
PERE understands one such failed attempt was made by the National Pension Service of Korea, South Korea’s pre-eminent state investment fund. “We have investors that want in, but it’s been very hard for us to get them in,” Pearce admitted. According to one capital advisor who declined to be named, units of the Goodman Hong Kong Logistics Fund have not become available on the secondaries market for about three years. “The logistics market in Hong Kong has been rocketing since,” he added.

Perhaps then it is unsurprising that when Goodman tapped the fund’s investors – including Dutch investors Algemene Pensioen Groep and PGGM and Abu Dhabi state funds Abu Dhabi Investment Authority and Abu Dhabi Investment Council – for HK$2.3 billion (€228.2 million; $296.5 million) to buy into the world’s largest logistics facility last month, its request for funds was oversubscribed. Pearce described the clamber to fund the acquisition of a 25 percent stake in the ATL Logistics Centre Hong Kong – a 13-story, 6 million-square-foot mega-property – as well as a stake in ports owner and operator CSX World Terminals Hong Kong from Dubai’s DP World as “overwhelming.”

That capital-raising effort was the third such undertaking for the Goodman Hong Kong Logistics Fund, following its initial HK$4.4 billion haul at launch and an additional HK$1.6 billion raised in 2011 to fund the development of Interlink, another nearby mega-property in which a 50 percent stake later was sold to the Canada Pension Plan Investment Board. That brings the fund’s total equity raised to HK$8.3 billion.

“The key for this transaction is to cement our leading position in a very key logistics market,” Pearce said. “In terms of free port status in Hong Kong and activity with China, it always will play an important part in the logistics market.”
Indeed, the acquisition of the ATL Logistics Centre has resulted in Goodman assuming a 35 percent market share in Hong Kong and, in so doing, has provided its investors with a stronghold in the third busiest container port in the world behind Singapore and Shanghai.

Such an outlay represents the sort of strategic long-hold investment for which the Goodman Hong Kong Logistics Fund originally was intended. Whether the fund can sustain opportunistic returns without booking significant capital appreciation via further sales is questionable. Assets like the ATL Logistics Centre become available infrequently, so there could well be an onus on effective asset and tenant management in order to maintain outperformance. Regardless, even a slip by as much as 5 percent would see the fund’s performance remain well within its original targeted range.

Goodman Hong Kong Logistics Fund

Inception: 2005
Focus: Long-term, sustainable income from prime
industrial assets in Hong Kong
Capital raised since inception: HK$8.3 billion
Goodman co-investment: 20 percent
Current assets under management: HK$17.8 billion
Target return: 10 percent
Average return since inception: 15-20 percent*

*According to PERE sources, unconfirmed by Goodman