ASIAVIEW: Turn of the tide

Last September, in a column entitled ‘Defiance on the playground’, I identified LaSalle Investment Management as being among managers with a point to prove after the performance of its third pan-Asia fund – the region’s second largest ever raised – disappointed. I said it had become clear that LaSalle would have to do things the hard way when it came to the next fund in the series, LaSalle Asia Opportunity Fund IV, and that it would take cold, hard results to curry fund-
raising favor once again.

That column, along with other articles by PERE about the fund, apparently received a frosty reception at LaSalle’s headquarters in Chicago.

After highlighting the challenges and setting barometers for its success in this column 10 months ago, it is only right that the spotlight is thrown back onto LaSalle now that it appears to have made significant positive progress. Indeed, it is PERE’s understanding that, by the time summer gives way to the fall, LaSalle will have completed raising capital for Fund IV. The firm is targeting $500 million for the fund and, while unsubstantiated by LaSalle, it is understood that the final closing amount will be there or thereabouts.

LaSalle is hamstrung from talking about the fund for fear of falling afoul of SEC regulations on solicitation until its final closing is complete. Thankfully, however, investors are not caught up in the same regulations, and one LP – the San Diego City Employees’ Retirement System (SDCERS) – wrote a memorandum in April that is quite revealing.

In a 32-page note to its investment committee endorsing a $50 million commitment to the fund, SDCERS provides evidence that those backing LaSalle’s opportunity fund series these days already are being rewarded. According to the note, gross returns from $914 million of investments since 2009, both realized and unrealized, currently are valued at 17.1 percent IRR and a 1.7x equity multiple. Not included in those numbers are returns from the firm’s high-performing Japanese logistics investments, made for a separate sector-specific fund series. As SDCERS noted in the small print, the numbers were taken exclusively from tail-end investments made for LaSalle Asia Opportunity Fund III and early outlays on behalf of Fund IV.

SDCERS’ note also demonstrates LaSalle’s resolve in keeping the fund series going. To make its investors comfortable, the firm has committed to provide an unconventionally high 10 percent of the fund’s equity and has kept its management fee low, at 1 percent on committed equity and 1.5 percent on invested equity. The hurdle before carry is paid is 10 percent as well.

Those measures will matter around the edges, but LaSalle will have been more confident about its uptick in fortunes on the back of its early investments on behalf of Fund IV. A separate note from the firm to investors last July, obtained by PERE, explained how it had acquired assets valued at
$180 million “at attractive discounts to market values” and which already were “income producing.”
So things seem to be going well now. As frustrating as it must have been, particularly given how US rules curtail open discussion of performance during fundraising, LaSalle has had to be patient for the message to seep into the market. Through its public disclosure, SDCERS has done the firm a favor.

LaSalle’s Fund III was the second-largest capital raising ever recorded for opportunistic real estate investments in Asia. Rightly then, that fund attracted our attention for the years it was relevant, but things do change, as LaSalle is proving.

Since a change in leadership in 2011 that saw Mark Gabbay and Philip Ling take joint control in Asia, LaSalle has widened its spectrum of activities in the region. The opportunistic fund series remains important, but the firm should be recognized more widely for its other interests in the region as well. The $431 million it raised last summer for the third vehicle in its Japan Logistics Fund series and another $250 million for side cars and other separate accounts attest to that. PERE is aware that LaSalle also is keen to grow out a core real estate platform in the region as well.

So, while the focus on LaSalle’s opportunistic series was warranted, the firm’s eggs are spread across multiple baskets these days. As a result, coverage of the firm in the region should be as well.