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Calpers has committed $500 million to ARA Asia Dragon Fund, a new fund that focuses on property opportunities in this region. The pension fund has also allocated $500 million for potential co-investment opportunities in private real estate with the same fund.
Calpers manages more than $250 billion in assets worldwide including $34 billion in property.
ARA Asia Dragon Fund recently completed its first closing and raised $1.2 billion in commitments, and hopes to raise a total of $1.8 billion at a second and final closing by the end of this year. The fund is sponsored by ARA Asset Management, which manages around $4.7 billion in assets and is an affiliate of the Cheung Kong Group. ARA Asset Management is one of the largest managers of real-estate investment trusts (Reit) in Asia ex-Japan. It manages the Singapore Exchange-listed Fortune Reit and Suntec Reit, the Hong Kong Exchange-listed Prosperity Reit and the Bursa Malaysia-listed AmFirst Reit.
ôThe fund is providing us an opportunity to play a bigger role in Asia, which has one of the fastest growing economies of the world,ö says Calpers board president Rob Feckner.
The fund is also one way for Calpers to gain exposure in ChinaÆs growing economy, which is still off limits for the pension fund when it comes to public equity investments.
In February 2002, Calpers overhauled its standards for investing in emerging markets with the help of pension consultant Wilshire Associates, and has been investing only in stock markets of countries that meet stringent requirements. Wilshire Associates recommends emerging markets to Calpers on the basis of political stability, transparency, labor practices, market liquidity and volatility, market regulation, capital market openness and transaction costs. As of the latest review of permissible emerging markets that was released in April, China was still off that list.
The ARA Asia Dragon Fund will invest mainly in Singapore, Hong Kong, Malaysia and China. Investments will focus on residential development projects in major cities that are highly urbanized and have strong population growth, commercial development projects, and underperforming assets in good locations. The fund is targeting an annualized rate of return of 18% for the new fund.
The fund will limit its investments in any one country to no more than 50% of its total commitments. Investment in China will have a lower cap of 25%.
The fundÆs connection to Hong Kong property tycoon Li Ka-Shing likely played a part in CalpersÆ decision to invest in it. Calpers executives note that Cheung Kong is one of the largest real-estate development companies in Asia, with a market capitalization of around $104 billion, and is a dominant player in every real-estate sector.
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