Asia-focused assets under management (AUM) have seen significant growth since the early years of the closed-end real estate industry. Although investors were far more cautious following the Global Financial Crisis, leading to relatively slow growth in AUM between 2008 and 2010, Asian industry assets grew rapidly thereafter to reach a peak of $112bn in 2014. In 2016, however, the industry contracted significantly following a 20% fall in unrealized value compared to the previous year, although dry powder in 2016 reached a seven-year high of $29bn. The reverse is true for the first half of 2017, for unrealized value accounts for a larger proportion of industry AUM, signifying that fund managers have been successful in putting investor capital to work in the Asian real estate market.
However, the growth in Asia-focused AUM has not outpaced the wider market: the Asian market represented over a fifth (21%) of global real estate assets in 2009, which has since fallen to 11% as at the end of H1 2017 – a 13-year low – a result of the post-crisis recovery in more traditional markets. Despite this, Asia-focused closed-end private real estate funds have demonstrated strong performance in recent years, surpassing the median net IRRs of North America- and Europe-focused funds in seven of the 11 vintages examined, as seen in the chart above. Asia-focused 2013 and 2014 vintage funds have posted median net IRRs of 16% or greater, with 2011 vintage funds returning 19.5%.
As a result of this strong performance, Asia-focused fund managers have been more successful at distributing capital back to their LPs than at any other point in their history. Since 2013, distributions have far surpassed capital calls, and delivered more capital back to investors than has been called up, with 2016 figures (the latest full-year data available) showing net cash flows back to LPs at a record +$20bn.
Click here to see more detail on the trends highlighted in this blog as well as more information on the Asian real estate market.