RRJ Capital, the Asia-focused private equity firm founded by ex-Goldman Sachs veteran Richard Ong, has begun soft marketing for its debut real estate fund with a target of $500 million, according to a report in the South China Morning Post.
Rather than focusing on direct real estate investment, however, RRJ is intending to buy stakes in Chinese property developers focused on the country’s growing middle class and domestic consumption.
With Beijing consistently cracking down on property speculation in the hopes of curbing rising home prices over the past year, Ong said he wanted to avoid betting on land price appreciation.
Though the firm’s initial capital raising target for the fund is $500 million, Ong told the Morning Post that RRJ could raise the target to $1 billion “if the demand is there.”
RRJ’s strategy is to take advantage of China’s rapid urbanization rate; between 2010 and 2025, China’s Ministry of Housing and Urban-Rural Development estimates that 300 million rural Chinese will migrate to the cities, shifting the economy to be driven more by domestic consumption rather than exports.
“There is no stopping [the growth of the middle class in China] for the next 10 to 20 years,” Ong said. Consequently, the firm intends to focus on the residential and retail sectors. Tourism could also be a focus, according to the SCMP report, as RRJ prepares to announce an investment in a 4-star mainland hotel chain.
The launch of the real estate fund follows just one month after RRJ made its first foray into the real estate sector with a $150 million investment in Hong Kong-listed China developer CIFI Holdings. Vivian Lam, managing director of the firm, told PERE previously that the firm will continue to look for “winners” among Chinese real estate developers, in the hopes of selecting several for investment over the next few years.
“In Chinese real estate, we certainly see more opportunities coming up, as a lot of small- to mid-cap real estate companies prepare to IPO,” Lam said. The founders of RRJ invested in Chinese developers in their previous roles, she added, “which is why, after seeing the cycles [of such companies], we believe right now is the right moment to invest.”
The Hong Kong-based group was formed in 2011 when co-founder and co-chairman, Richard Ong, formerly head of Asia investment banking at Goldman Sachs, spun out of his private equity firm Hopu Investment Management. His brother Charles Ong, who had previously spent 10 years at Singaporean sovereign wealth fund Temasek Holdings, holding positions including chief investment officer and chief strategy officer, joined him as the co-founder and co-chairman. With those credentials, RRJ was able to raise an aggregate of $5.9 billion across its two funds.