With the amount of capital raised for private equity real estate last year, especially opportunistic funds like Gaw Capital Partners’ fourth China fund or Secured Capital’s impressive $1.5 billion haul, smaller funds seemed to get lost in the mix. Now that these ‘mega funds’ have been capitalized, Graeme Torre, Asia-Pacific managing director at Invesco Real Estate, suggested that smaller funds may have a shot at raising capital – as long as they follow investor demand.
Going into 2014, Torre noted that investor demand has taken a significant shift in the region. Indeed, investors no longer demand high returns from Asian real estate. Even foreign investors coming to Asia have become more willing to move down the risk spectrum.
“We’ve certainly seen a very strong demand from our own client context for core assets and funds offering core assets in this region,” Torre said. Hence, he expects that the coming year could see a range of offerings and closings.
Sometimes, the pricing of core could make such assets attractive only to domestic investors, while international investors typically want somewhat higher returns. Still, one way or another, Torre believes the demand for core will continue to be strong.
“Investors are now quite sophisticated, choosing the investment style they want,” Torre said. With so many already having committed to Asian opportunistic funds, smaller funds shifting to lower-risk, lower-return strategies could be considered “a natural consequence of investors choosing the investment styles they want.”