Quek Kwang Meng and his employer, Mapletree Investments, faced a few problems – albeit good ones – when the Singapore-based investment firm hit the road for its second China-focused opportunity fund, Mapletree China Opportunity Fund II, last October.
For instance, its first fund, which raised $1.13 billion, only had three investors.Though Mapletree’s original limited partners clearly were able to write large checks – they included the firm itself, its parent company Temasek Holdings and an undisclosed private bank – the firm wanted to diversify its client base for its second fund. As a result, it hired Hodes Weill & Associates to help attract investors from the US, Canada, Europe and the Middle East.
Second, the scale of the projects in which Mapletree was involved had become larger than those of its first fund, but the firm didn’t want to raise so much equity that it couldn’t deploy the capital within the designated investment period. “We were starting to see the landscape in China changing, with bigger projects that typically require more equity,” said Kwang Meng, regional chief executive for China and India. “At the same time, we needed to be realistic about the amount of time we have to deploy that capital.” Therefore, although the firm targeted $1 billion when it set out nine month ago, the final equity tally ended up at $1.4 billion.
At one stage, commitments started pouring in over a matter of weeks, and Mapletree had to turn away some big tickets. In the end, the fund was oversubscribed thanks to excess demand from various parts of the world.
Almost all of those investors that ended up as LPs made the trip to visit Mapletree’s projects. It helped the fund’s prospects that the vehicle was seeded by two large mixed-use schemes, enabling investors to “get comfortable” because the fund wasn’t entirely ‘blind’. The first is the 3 million-square-foot Minhang mixed-use scheme, comprising Mapletree Business City and VivoCity in Shanghai, and the second is South Station Enterprise City, a 5 million-square-foot mixed-use project in Sanshan New City, Foshan.
A linked factor that helped Mapletree in its fundraising, explained Kwang Meng, is the fact that the firm has a developer-fund manager model. It employs up to 400 people in China alone and has a “vertically integrated” team to handle everything.
Furthermore, the fund strategy had been carefully crafted so as not to overlap or conflict with any of Mapletree’s other Asia strategies, including its existing China business. Last but not least, earlier in 2012, the firm managed to return close to 90 percent of the invested capital in Fund I to investors following realizations on just two investments, helping to boost confidence even further.
The resulting final close at the end of August means Mapletree currently holds the record for the largest closed-ended, blind-pool opportunistic real estate fund raised for China so far. The fundraising took 10 months from start to finish and expanded the firm’s institutional base from three to 11 investors, with Mapletree committing 36 percent of the capital itself.
Alfredo Lobo, Hong Kong-based partner at Hodes Weill, said Mapletree’s experience as a developer in China helped the fundraising effort, as did the scale of its platform and the alignment of interest created by the firm’s sizeable co-investment in the fund. Having two seeded assets also didn’t hurt matters.