Not for the first time this year, one of Asia’s highest-profile private equity real estate fund managers has made an important call after talking to its investors.
After previously stating its maiden core real estate fund in the region would be structured as closed-ended, SC Capital Partners, the Singapore-based firm of entrepreneur Suchad Chiaranussati, has decided to offer the vehicle to the market instead as open-ended.
“We were encouraged by our investors to have permanent capital,” remarked Chiaranussati. Although his initial preference was for a limited-life fund which operated on a similar performance basis to SC Capital’s well-known opportunistic Real Estate Capital Asia Partners series, he admitted: “I finally agreed with that concept.”
PERE tipped the launch of the firm’s core fund last year but the SC Core Fund was officially unveiled this summer. The initial fundraising target is $400 million, although such is the early interest in the strategy, a final closing could well be at a higher figure, Chiaranussati said.
Chiaranussati said he had accepted his investors’ reasoning behind their preference for an evergreen fund structure. Among their reasons was a desire for SC Capital to only market one fund launch.
Accordingly, SC Capital would remain perpetually invested in the vehicle ensuring alignment between the firm and its investors. Similarly, strong performance for an open-ended fund would be achieved through constant management, unlike a closed-ended fund, where strong performance could be simply a function of market timing.
“With a closed-end fund, your performance is measured by IRR. This will be based on growth of cash flow, not cap-rate compression, which has nothing to do with us as a manager,” he said.
Chiaranussati has bent to the will of his investors on SC Core Fund’s structure but, true to form, the vehicle has the firm’s creative fingerprints on it. Specifically, it has a one-year redemption notice written into its documentation. In Europe, for example, the norm for redemption notices is quarterly but Chiaranussati believes that stretching the timeframe to one year safeguards the firm from being subject to forced asset sales. “The chances of being forced to sell in a volatile market is lower,” he said.
The switch from a closed to open-ended core fund is the second time in recent months that SC Capital has sought and then followed advice from its investors before making an important call. In June, it opted against an innovative transaction to moor a cruise liner it had acquired in Yangon after associated costs escalated beyond its underwriting. Investors expressed a preference for an alternative solution for the investment.