HSH Real Estate, a unit of HSH Nordbank of Germany, and Singapore-based real estate investment and fund management firm Pacific Star Group have jointly set up a fund that will invest in prime properties in Asia.

HSH and Pacific Star are targeting to raise E500 million ($703 million) for the fund, which is expected to be the first in a series of funds to be set up by the two parties. HSH Real Estate will raise capital from German institutions and private investors, while Pacific Star will be responsible for managing the portfolio.

The fund will invest in property development as well as existing assets especially in the residential and retail sectors, which are among the strongest growth opportunities in this region. It will initially invest in Japan, Singapore and South Korea and then will expand to emerging markets such as India and China.

The search for alternative investments among US and European investors, both in terms of geography and in terms of asset class, is attracting more money to Asian real estate.

ôWe think that in the foreseeable future, selected Asian markets will provide better perspective for real estate investors than other regions,ö says Marc Weinstock, member of the management board at HSH Real Estate.

ôLong-term economic growth, positive demographic trends and market size shall work as a sound basis for the further expansion of individual markets across various asset classes. Combined with the increasing variety of investment products as well as the opportunity for risk diversification for European investors, the Asian market is a place to be,ö he adds.

Just recently, California Public EmployeesÆ Retirement System (Calpers), the biggest pension fund in the United States, set aside $1 billion for investments in Asian real estate, raising its allocation to the regionÆs property sector by 50% to $3 billion.

Previously, Pacific Star Group launched the $845 billion Macquarie MEAG Prime REIT, the US$580 million Eureka Office Fund, the US$1.6 billion Asia Real Estate Income Fund, and the US$600 million Baitak Asian Real Estate Fund.