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RMB fund manager to raise maiden US dollar fund

KaiLongRei Investment, a Shanghai-based real estate investment firm, is raising its maiden US dollar fund, targeting up to $300 million for value-added investments in China.

KaiLongRei Investment, a Shanghai-based real estate investment firm, has launched its first US dollar-denominated private equity real estate fund.

In a departure from its usual Renminbi-denominated capital raisings, the firm is targeting between $200 million and $300 million for this fund, and has begun informally talking to prospective investors.  

Since its founding in 2004 KaiLong has raised RMB 1.7 billion (€205 million; $278 million) across four RMB funds but it has yet to raise a fund denominated in US dollars.

According to Ivan Ho, KaiLong’s executive director for fund management, the US dollar fund already has an anchor investor, and the firm is currently negotiating with several other institutional investors for a first close expected by the end of the year.

For the fund the firm will focus on commercial real estate, including office assets, industrial office parks and certain kinds of retail, in mainland China and Hong Kong, Ho told PERE. The fund can also be used for development, but only up to 20 percent of its total capital.

KaiLong is targeting institutional investors worldwide. It is currently in talks with investors from North America, Europe and Asia.

The firm’s strategy for the fund places its risk-return profile somewhere between value-add and opportunistic, but Ho said it hopes to deliver opportunistic returns to investors with an overall leveraged IRR of between 18 percent and 20 percent. The fund’s leverage on deals is expected to be no more than 60 percent, he added.

Ho said that KaiLong has been wanting to raise a US dollar fund for a long time, but after the onset of the global financial crisis its investors wanted the firm to start out with RMB funds. However, KaiLong has managed several separate accounts in US dollars for some real estate funds alongside its funds. KaiLong has invested in 21 real estate projects with a total value of RMB 7.7 billion for both separate account investors such as Citigroup, Cargill, AEW, SecuredCapital and Rykadan, and its RMB funds.

He said that US dollar investors are different from the RMB investors that KaiLong has dealt with for its four previous funds, which have mostly been retail high net-worth individuals, and thus the strategy of KaiLong’s US dollar fund is different from that of its RMB funds. The firm’s RMB investors typically look for core investments, and expect a short holding period of between two to three years, Ho explained. International institutional investors, on the other hand, are looking for higher returns from Chinese real estate.

In keeping with typical US dollar denominated private equity real estate funds, KaiLong’s is expected to run for seven years with two one-year extensions.