In our November 2012 blog on the growth of debt funds, we noted the evolution of real estate debt from a niche segment to an important part of the private real estate fund industry. Preqin's Real Estate Online database reflects the significance of these funds in Asia, revealing that 40% of Asia-based investors in private real estate funds are known to have a preference for debt vehicles. Collectively, these Asia-based institutions represent over $3.8tn in funds under management.
The majority of the appetite for this relatively high-risk fund strategy stems from South Korea, where 46% of this investor pool is based, followed by Japan which is home to a further 28% of the Asia-based investors that favour private real estate debt funds. Singapore and Hong Kong-based institutions account for 9% and 7% of the investor group, with the remaining 10% of firms located in India, China, Malaysia and Taiwan.
In terms of geographic investment preferences, the overwhelming majority (96%) of Asia-based investors in private real estate debt funds favour funds with an investment focus on Asia. North America is the next most prominent investment destination, with 54% of this investor pool willing to commit to vehicles focused on this region. Forty-one percent of investors are willing to commit to Europe-focused funds, while 33% of these Asia-based institutions prefer to invest with a global scope. Only 13% of this investor pool has a preference for Australasia-focused vehicles.
The significant investor appetite among Asia-based institutions for private real estate funds employing debt strategies appears to be fairly well served by the current investment opportunities on the road. There are presently 99 private real estate debt funds that are actively raising capital. One significant vehicle is Blackstone Real Estate Debt Strategies II, managed by the US-based Blackstone Group. The debt fund is looking to raise approximately $3bn in capital to invest in diversified property types in North America and Europe. Another large fund of this nature currently in market is Asia-focused Aetos Capital Asia V, which is targeting $1bn and plans to employ a mix of debt, distressed and opportunistic strategies to invest in China and Japan. Apollo Global Real Estate Management’s $600mn AGRE Asia Pacific Real Estate Fund employs a similar investment strategy, but with a broader geographic scope that also includes Australia, India, Hong Kong, Taiwan and Singapore.