2010AWARDS & AnnuAL REVIEW - PERE

AnnuAl review | AsiAview
Changing of the guard
As investment banks backed out of Asia’s private equity real estate sector, PERE
considers those primed to take their place. By Jonathan Brasse
In Asia, 2010 will be remembered as the
year that Wall Street’s presence diminished
in the region. The departures of
Bank of America Merrill Lynch (BoA
ML), Citi Property Investors (CPI) and
insurance giant American International
Group from the sector were one sign
of that.
A look at Real Capital Analytics’ 2010
figures for the region highlighted another.
According to the research group,
Wall Street rivals Goldman Sachs and Morgan Stanley were
net sellers in the region to the tune of $1.9 billion and $1 billion,
respectively – the fourth and ninth biggest net sellers
last year.
Indeed, while Morgan Stanley Real Estate Investing (MS-
REI) finally achieved a $4.7 billion closing for its seventh
global real estate fund in May, PERE learned in December
that what the firm is willing to buy in the region had been
tempered somewhat. Responding to questions after it closed
Morgan Stanley Capital Korea, the firm revealed that its Asia
investing strategy had been restricted to value-added and
distressed plays in developed markets and growth plays in
emerging markets. That no longer included Korea, it noted.
Perhaps it is strategy evolution, but Morgan Stanley pulled
the curtain down on a 10-year tenure in
the country as a consequence of the shift.
The market will be fascinated to follow the
activities of MSREI’s head of Asia Hoke
Slaughter, its chief executive officer for Japan
Yoshihiko Shigenari and the rest of the
team over the coming year to see if its efforts
are truly redeployed elsewhere.
Meanwhile, at Goldman Sachs, its last
fund was the $2.1 billion Whitehall Street International Real
Estate 2008, and there have been no reports of a follow-up
fund to date. Furthermore, the almost $2 billion of disposed
assets in Asia last year accounted for two-thirds of all its disposals
globally, further demonstrating it hasn’t prioritised the
region ahead of others. For more context, look again to RCA,
which noted that Goldman purchased just two assets in Asia
throughout the whole of the year – a 46,000-square-foot office
in May and a Labi 1 electronics store three months earlier,
both in Japan.
Bank of America Merrill Lynch’s departure from principal
investing in Asia was possibly PERE’s most coveted story of
2010. No quiet backtracks there, rather a complete exit for the
firm. After quelling litigation threats for actions considered
non-fiduciary by the LPs of its Asian Real Estate Opportuni-
52 PERE | 2010 AwArds & AnnuAl review
2010 will be
remembered as the
year that Wall Street’s
presence diminished
in the region
ties Fund via a handsome $650 million settlement, the $2.65
billion fund and its other Asia balance sheet assets now sit
with The Blackstone Group.
That brings us to the players for 2011.
Blackstone had a presence in Asia a couple of years before
assuming control of the 50-person BoA ML platform,
but its offices in Hong Kong, Tokyo and Mumbai had been
pretty quiet until then. The transaction sees it inherit approximately
$8 billion of assets to work through and approximately
25 more limited partners with which to work
on future investment products. Expect to hear more about
platform leaders Chris Heady, Alan Miyasaki and Tuhin
Parikh going forward.
Likewise, Blackstone’s private equity rival Apollo Global
Management. Before picking up Citi Property Investors, Leon
Black’s firm – the real estate activities of which are led by industry
veteran Joseph Azrack – picked up the smaller Holdfast
Capital. Through Holdfast, Apollo acquired the nucleus
of a platform led by Colony Capital’s former Asia head Grant
Kelley as well as a fund in incubation. The adopted fund, originally
focused on Asia’s mature economies including Australia,
Japan and Korea, is expected to hold a closing this year.
On a smaller scale, a host of companies chose 2010 as the
year to graduate from investing on a deal-by-deal basis to trying
their hand at blind pool, commingled vehicles. Examples
included Hong Kong and Singapore investor
Pamfleet Group and Sydney-based LIDIS.
Such activity surely stems from increasing
positive sentiment from investors towards
Asia. According to PERE’s Capital
Watch figures, more than $5 billion was
raised for Asia-specific value-added and opportunity
funds. That was paltry compared
to the $18.97 billion raised in 2008, but up
from 2009 levels. And while most of the world’s largest LPs
are seeking alternatives to traditional commingled funds,
that is not true for all of them.
Look at the National Pension Service of Korea, for example.
It has $1.2 billion of commitments earmarked for higher risk
funds in early 2011, a significant portion of which will go to
Asia. Additionally, there is a world of smaller investors that
have remained faithful to such vehicles.
It could have been the Volcker rule, which will limit principal
investing by US banks, that prompted a changing of the
guard in Asia. More likely, however, it was the dire fortunes
of their 2006, 2007 and 2008 vintage funds that sealed the
demise of those efforts. Regardless, PERE has a new breed to
write about, ensuring that 2011 stands to be a most interesting
year.