Rich raise exposure to unlisted Asian property funds

The AUM of wealthy individuals in Asian property funds has almost doubled in the past year, while institutions have sought simpler real estate investments.

Wealthy individuals have strongly increased investments into unlisted Asian property funds over the past year to tap rebounding markets and distressed opportunities.

At the same time, institutional property investors have been deleveraging and seeking out simpler vehicles, shifting money away from value-added funds towards conventional core funds. “They want less risk and lower leverage,” says Clara Lee, the research director at the Asian Association for Investors in Non-listed Real Estate Vehicles (Anrev).

They have also shown a preference for vehicles that are easier to understand and that provide targeted exposure to specific Asian markets and sectors, rather than large, pan-Asian or international funds. “People are looking for more focused vehicles,” says Lee. “They prefer single-country, single-sector vehicles as opposed to multi-country, multi-sector vehicles.”

That is partly because multi-country funds fared badly in the global financial crisis and partly as a result of where the investors come from. Institutions looking for exposure to Asia typically already have allocations to other parts of the world and want targeted exposure here. “Investors coming into the region want to look for diversification, so they want to look for specific funds in the region, not a fund that also has exposure to the US or Europe,” says Lee.

These shifts emerge in the recently released Asia Property/Anrev Asian Fund Managers Survey 2010. It tracks 48 property fund managers that invest in Asia, managing $179 billion in the region. This is the second year that Anrev has published its fund-manager report.

Compared with last year, high-net-worth individuals have become much more influential, accounting for 11% of the assets under management in Asia, almost double last year’s 6% tally. That puts rich individuals and their family offices on a par with insurance companies, which also account for 11% of assets.

Insurers and pension funds, which are by far the biggest investors and make up 40% of the money in Asian unlisted property funds, saw their share of assets little changed.

It’s likely that rich individuals and family offices reacted more aggressively to chase investment opportunities in property both as distressed assets came on the market and as property markets in Asia rebounded.

“Other asset classes have not proven to provide the returns that they desire recently, so they are looking for alternatives,” notes Lee. “Given the downturn that we just experienced, there is a lot more upside in property. And maybe opportunities that previously didn’t exist are surfacing.”

There was little change at the top of the ranking of Asia’s largest managers, with Morgan Stanley managing the most money in unlisted Asian property, at $19.5 billion, up from $19.1 billion in the 2009 survey.

Singapore-based CapitaLand Financial is the second-largest, with Asian assets of $16 billion. Meanwhile, ING Real Estate Investment Management saw its dollar tally fall 16.5% to $10.4 billion, from $12.5 billion last year.

Lee notes that several managers saw declines in their assets, sometimes because of asset-price declines and also because funds terminated during the last year and weren’t replaced by funds of a similar size.

Australia still has a commanding representation in the ranking of the largest managers, with AMP Capital Investors, Dexus Property Group, Goodman Group and Lend Lease Investment Management all in the top 10. “Australia is likely to dominate for some time,” Lee says. “It is quite a sophisticated market so there is a lot of institutional investment in the real estate sector.”

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