A Changing Landscape for Asian Private Equity Real Estate Fundraising

by Andrew Herman

  • 17 Dec 2010
  • RE

The annual aggregate fundraising total for Asia-focused private equity real estate funds peaked in 2008, with $26.9 billion raised by 43 funds. Asian fundraising was particularly affected by the economic downturn and in 2009, 16 funds raised an aggregate $5.2 billion. The dramatic decline in Asian fundraising since 2008 can be explained by looking at the composition of fund managers and investors in the region more closely. The slump in fundraising in 2009 is partially due to the decrease in capital being raised by foreign fund managers (i.e. those headquartered outside of Asia). Prior to 2009, foreign managers had typically accounted for a high proportion of the aggregate capital raised for Asia-focused funds. For funds closed in 2009, however, capital raised by foreign managers accounted for just 23% of the aggregate total. North American and European fund managers, which were primarily responsible for gathering the majority of the foreign capital entering the Asian property market, were generally far more reliant on the commitments of Western investors than their Asian counterparts.

The economic downturn had an adverse affect on investors located in North America and Europe, with some halting investments altogether, while others concentrated principally on investments closer to home, consequently affecting Asia-focused fundraising by North American and European managers.

The proportion of capital being raised by domestic fund managers is likely to increase further in the future. Domestic managers have closed more funds since 2005 than their international counterparts, despite the levels of capital raised by these funds being less significant. While the larger North American and European firms typically have sizeable investors that regularly commit to their vehicles, the relative inexperience of Asian fund managers has resulted in them struggling to attract the same level of commitments. It is particularly evident in the tough financial environment that investors are doing more extensive due diligence before committing to funds, so it is becoming crucial that managers have a long and successful track record in order to earn investor commitments.

CapitaLand is an example of an Asian manager that has closed a number of funds, and in the process developed a strong investment track record, allowing it to market its funds more successfully. In 2004, the firm closed its first private equity real estate fund, CapitaLand China Residential Fund, raising just $61 million. The firm has since raised more than 10 additional funds allowing it to further its experience and contacts within the asset class. In Q4 2008, the firm closed Raffles City China Fund, garnering commitments of $1 billion; this shows how the firm has quickly developed a source of investors willing to commit substantial amounts of capital to its funds.

The number of funds in market being raised by Asian firms is therefore encouraging for the future of Asian fundraising. Many of these firms are somewhat new to the industry, which explains the moderate levels of capital their funds are currently receiving. Once these managers are able to develop a successful reputation of property investments, both foreign and domestic investors will be more likely to commit to their funds, leading to larger amounts of capital entering the Asian property market.

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