Key Takeaways
- • Institutional investors including pension funds and sovereign wealth funds are increasing allocations to closed-end private equity real estate funds targeting Asia-Pacific, with Japan, Australia, Ho Chi Minh City, Singapore and China among the focus markets, according to the article.
- • Office remains the favoured sector among APAC investors, while industrial and logistics spaces are also expected to perform well.
- • Real estate in APAC continued to generate solid returns roughly a decade after the Global Financial Crisis, per a PwC and Urban Land Institute study, with total returns expected to reach 8.7 per cent in 2019 according to M&G Investment Management.
- • Private equity real estate fundraising and deal flow fell in 2019 per a McKinsey report, yet private market fundraising in Asia grew at an average of 7 per cent annually between 2013 and 2018.
- • Coronavirus is the leading near-term risk, though economists expect limited impact on longer-horizon investments, while market overcrowding, which raises deal costs, is investors' most pressing concern.
Summary
According to a commentary by Paddy Kirwan, Head of Client Operations at MUFG Investors Services APAC, a flurry of real estate projects across the Asia-Pacific region has drawn growing interest from investors in private equity real estate funds. Traditional asset managers, pension funds and sovereign wealth funds have turned to the region after years of low equity volatility and minimal yields in fixed income across Europe and North America.
Investors have been increasing allocations to closed-end private equity real estate funds targeting properties in Japan, Australia, Ho Chi Minh City, Singapore and China. The office sector has been the most favoured, though industrial and logistics assets are also expected to perform well. Once a market and sector are selected, managers increasingly seek fund administrators capable of providing end-to-end services across the region, from accounting to financing.
Industry observers have long predicted a peak in global real estate cycles, yet APAC real estate continues to generate solid returns roughly a decade after the Global Financial Crisis, according to a PwC and Urban Land Institute study. Investors remain divided on how long regional economic growth will persist, and they are weighing risks including the coronavirus, the mixed level of regulatory and legal protections across APAC countries, and US-China trade tensions. The article notes that the coronavirus does not present a direct threat to Asian real estate markets, though its full impact is difficult to predict at this early stage.
Despite these risks, private equity firms largely remain determined to deploy capital in the region. Private equity real estate fundraising and deal flow fell in 2019, according to McKinsey's latest report on private markets, but the article notes that Asian private market fundraising grew at an average of 7 per cent annually between 2013 and 2018. According to a Willis Towers Watson Thinking Ahead Institute study, pension fund allocations to private markets rose to 23 per cent from 6 per cent since 1999. Large managers including BlackRock and Aberdeen Asset Management, as well as Malaysian sovereign wealth funds, have been active, with PwC and ULI noting that trade-war-driven slumps in Chinese markets could present buying opportunities.
The article also highlights the service requirements of large APAC funds, which seek administrators offering subscription lines of credit, bridge and acquisition financing, GP and LP reporting, tax compliance, AML/KYC, and private equity-focused accounting software. Longtime regional administrators that understand local regulations and offshore fund requirements are described as increasingly valuable to managers navigating the region.
Investors have been increasing allocations to closed-end private equity real estate funds targeting properties in Japan, Australia, Ho Chi Minh City, Singapore and China. The office sector has been the most favoured, though industrial and logistics assets are also expected to perform well. Once a market and sector are selected, managers increasingly seek fund administrators capable of providing end-to-end services across the region, from accounting to financing.
Industry observers have long predicted a peak in global real estate cycles, yet APAC real estate continues to generate solid returns roughly a decade after the Global Financial Crisis, according to a PwC and Urban Land Institute study. Investors remain divided on how long regional economic growth will persist, and they are weighing risks including the coronavirus, the mixed level of regulatory and legal protections across APAC countries, and US-China trade tensions. The article notes that the coronavirus does not present a direct threat to Asian real estate markets, though its full impact is difficult to predict at this early stage.
Despite these risks, private equity firms largely remain determined to deploy capital in the region. Private equity real estate fundraising and deal flow fell in 2019, according to McKinsey's latest report on private markets, but the article notes that Asian private market fundraising grew at an average of 7 per cent annually between 2013 and 2018. According to a Willis Towers Watson Thinking Ahead Institute study, pension fund allocations to private markets rose to 23 per cent from 6 per cent since 1999. Large managers including BlackRock and Aberdeen Asset Management, as well as Malaysian sovereign wealth funds, have been active, with PwC and ULI noting that trade-war-driven slumps in Chinese markets could present buying opportunities.
The article also highlights the service requirements of large APAC funds, which seek administrators offering subscription lines of credit, bridge and acquisition financing, GP and LP reporting, tax compliance, AML/KYC, and private equity-focused accounting software. Longtime regional administrators that understand local regulations and offshore fund requirements are described as increasingly valuable to managers navigating the region.
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