Asia: The Capital of Property Capital

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Asia is firmly cementing its role as the capital of capital as property funds scour the world for institutional investors, finding ready backers in Asian sovereign wealth funds, pension funds and, increasingly, insurers.

China's role in supplying legions of well-heeled and property-hungry individual buyers is well documented. But it is the big money of institutional investment that has the world's property fund managers salivating.

Asian investors are by far the most likely to make new commitments to private real estate investments in the next year, according to a new report from private-fund tracker Preqin. In all, 71 percent of Asian institutions are looking to pour new money into fresh property mandates over the next 12 months, double the 35 percent rate for North American investors and almost triple the 24 percent from Europe.

Separate evidence from BlackRock, which manages both private equity and publically traded property investments, indicates a strong appetite for real estate equity and debt, as well as other illiquid assets like private equity and hedge funds, from Asian insurance companies, particularly in China, Taiwan, South Korea and Malaysia.

In a breakdown generated for the World Property Channel of a BlackRock survey of 200 insurers around the world, 40 of which were from Asia, 61 percent of the Asian insurers want to allocate more money to real-estate equity, while 49 percent also want to invest more in real-estate debt.

"While most insurers recognize that they need to change in order to boost shareholder returns, the survey suggests Asian firms are much more focused on using a tactical asset allocation framework to boost shareholder returns than their global counterparts," David Lomas, the head of BlackRock's global financial institutions group, said in releasing the survey.

"Asian insurers are also more active in preparing for the end of quantitative easing policies and are looking to invest into new diversifying fixed income asset classes," he added.

Real estate equity is a target for insurers from all around Asia other than Japan, where no insurers are looking to increase their stake in either property equity or debt, and the Philippines, where the tally is 20 percent for property equity.

Real estate debt is most popular among insurers in China (86 percent) and South Korea (75 percent). A recent report from CBRE concluded that Chinese insurers have more than $14.4 billion to spend on international real estate.

That infusion of cash is vital for the industry. The fund raising climate remains harsh, with 452 funds on the road around the world looking to raise money, Preqin figures show.

The Blackstone Group has two huge funds in the works, including the world's largest currently in fund raising, Blackstone Real Estate Partners Europe IV, at €5 billion, as well as the world's third-largest and biggest Asia fund, Blackstone Real Estate Partners Asia. They sandwich the Lone Star Real Estate Fund III, which has a global focus and is looking to raise US$6 billion.

In the third quarter, 59 percent of the funds that closed to new investors globally did so above their fundraising target, up from 40 percent in the second quarter and just 36 percent last year. Notably, Brookfield Asset Management closed its global Brookfield Strategic Real Estate Partners fund with US$4.4 billion in assets.

Asia is also an increasingly important destination for the deployment of capital. Rather than just acting as a source of "dumb money," Asian investors are requiring intra-regional investment, reflecting the home bias seen in most regions.

"While the focus remains on North America and European real estate, an appetite for Asia real estate has also increased recently in our discussions with institutional investors," said Joseph Pacini, head of BlackRock's alternative investment strategy group for Asia Pacific.

Asia is targeted by 55 percent of Asian investors, their top priority, with North America popular with 48 percent of the Asian money men and Europe, 39 percent, the same popularity rate as straight-up global funds.

That has resulted in some particularly large closures for Asia-focused funds this year, according to data compiled for the World Property Channel by Preqin.

Singapore-based Alpha Investment Partners has the largest pure Asia fund closure so far this year, at US$1.65 billion, with the value-added Alpha Asia Macro Trends Fund II, a pan-Asia fund.

Another Singapore manager, Mapletree Investments - backed by government money known as "Singapore Inc." - raised US$1.4 billion with the opportunistic and value-added Mapletree China Opportunity Fund II, which focuses on China.

The third billion-dollar fund this year is also China-focused, a core-plus, opportunistic and value-added fund from Hong Kong-based Gaw Capital Partners, which raised US$1.025 billion with the Gateway Real Estate Fund IV.