2010AWARDS & AnnuAL REVIEW - PERE

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toP stories | AsiA Seoul searching excerpts from the 10 most-read stories for Asia show that Korea was a hotbed of activity, not least due to the sheer volume of investment equity to emanate from the east Asian country 1Korea: saviour of opportunity funds? the national Pension service of Korea revealed it was planning to make up to eight commitments of $150 million each to value-added and opportunity funds in 2011 The world’s largest LPs have been saying for a couple of years now that they are shunning higher risk funds in favour of more core investments and less blind alternatives. As such, it was fairly predictable that December’s news of the National Pension Service of Korea’s (NPS) investment plan for 2011 would grab the attention of value-added and opportunity fund managers around Kang: ascending the risk curve the globe. NPS determined at the tail end of last year to make up to eight $150 million commitments into opportunistic strategies, the majority of which were to be made in Q1 this year. The decision to ascend the risk-curve followed more than a year of the $270 billion sovereign wealth fund committing equity to core strategies focused on major cities. Via separate accounts awarded to managers such as Rockspring Property Investment Managers, Prudential Financial’s Pramerica Real Estate Investors and Cleveland-based The Townsend Group, it appears NPS has parked enough capital in low-risk deals, for now. NPS’ real estate head, Andie Kang, told PERE: “I like real opportunity funds, not those run by the financial engineers but by those who understand real estate and how to add value.” There are some caveats to the intended commitments, namely geographical. Overweight in Europe after making a number of large outlays over the past 18 months, including the £772 million purchase of HSBC Tower in London’s Canary Wharf and the €570 million acquisition of the Sony Center in Berlin, NPS will seek to make more than 50 percent of the commitments to North and South America and Asia. Additionally, between 40 percent and 50 percent will be devoted to debt strategies. NPS may well be a forerunner of what is to come. Commentators increasingly are suggesting the world’s core markets are becoming saturated with equity-rich investors seeking safe 56 PERE | 2010 AwArds & AnnuAl review investments. With yields being pushed down in many cities to unattractive lows, perhaps other large LPs will follow in the sovereign wealth fund’s footsteps. 2BoA Merrill Lynch agrees to $650m LP settlement investors in its Asian real estate opportunities Fund received a large settlement from the wall street bank and, in the process, struck a blow for lP rights The private equity real estate community can seem like a bubble sometimes, with the wider financial world an afterthought. However, that certainly was not the view of Bank of America Merrill Lynch (BoA ML) when it opted to pay the LPs of its Asian Real Estate Opportunities Fund a settlement valued at $650 million after the 25-strong investor pool threatened litigation. At the heart of the grievance were actions taken by the bank considered non-fiduciary. More specifically, they included an ill-timed foreign exchange trade and a poorly executed series of valuations of assets transferred from BoA ML’s balance sheet into the fund when it was launched. An admission of wrong-doing was in order, but the Wall Street bank definitely had one eye on future relationships with its investors, which included the Abu Dhabi Investment Council, French insurer AXA and the General Electric Pension Trust, when making the offer in August. It was unanimously approved at a meeting in Hong Kong three months later. For the LPs, the money wasn’t the only incentive for settling. The agreement included removing BoA ML from its general partner and asset management responsibilities and replacing it with New York giant The Blackstone Group. Already a potent force in the US and Europe, Blackstone was able to plug a personnel gap in its Asia real estate team, inheriting more than 60 staff. The firm’s preference was to keep the asset management contingent of that team, about 25 people, to add to its existing roster of 15 as it worked through a mandate of managing out the fund. Even better for Blackstone, the firm came into the fray with less expectation to deliver stellar performances from the vehicle than its predecessor. Indeed, one insider said it could barely be expected to return much more than 70 cents on every dollar invested. The settlement represented the first major example of an LP revolution bearing serious fruit. Whether it stimulated other
disaffected investor pools to do likewise will no doubt become clearer this year. 3Schmidt bids farewell to Morgan Stanley Morgan stanley’s head of real estate investing in Japan resigned to launch a news real estate investment management business The news that Morgan Stanley Real Estate Investing’s head in Japan, Fred Schmidt, had resigned to start a new venture was the talk of last year’s PERE Forum: Asia. After all, one sure sign of an investment market nearing the bottom is when in- Schmidt: sayonara MSREI dividuals leave or spin out platforms from established businesses to give the next cycle a go themselves. Over the following months, PERE learned that Schmidt would team up with MSREI’s joint global heads John Carrafiell and Sonny Kalsi to launch a new business called GreenOak Real Estate Advisors. The business would grow to comprise platforms in Europe, North America and Asia, the latter of which was to be led by Schmidt from Tokyo. Today, GreenOak Investment Management has approximately 12 staff and is in capital raising mode for its first fund, GreenOak Japan Fund 1. The vehicle has a target of $500 million and a first closing is expected imminently. Schmidt was in charge of MSREI’s Japan business as the firm invested colossal amounts of equity on behalf of its ill-fated $8 billion Morgan Stanley Real Estate Fund VI. In 2007, for example, it invested $3 billion on a portfolio of 13 hotels from Japan’s All Nippon Airways, for which it later struggled to refinance the $2.4 billion of debt taken out to finance the deal amid crumbling values. One report by Reuters said the bank managed a portfolio in Japan valued at more than $10 billion during the heady days of 2006 - under Schmidt’s watch. Whatever the residual feelings of his tenure at Morgan Stanley, initial sentiment towards his GreenOak effort have been positive. One large investor PERE spoke to even admitted he was poised to make a significant commitment to the new firm’s incoming vehicle. Best of the rest on PEREnews.com [Asia] 4 ADIC’S BuRTOn RETIRES Mark Burton, the former chief investment officer for Abu Dhabi’s sovereign wealth funds, brought the curtain down on his illustrious career. He went on take various non-executive positions, most notably as advisor on the investment committee of Norges Bank Investment Management, the group responsible for managing and investing the assets of Norway’s sovereign fund. 5 APOLLO LAunCHES ASIA DIVISIOn Just a few short months before taking over Citi Property Investors’ global platform, Apollo Global Real Estate Management absorbed a sevenstrong investment management team in Asia by the name of Holdfast Capital. Formerly part of Colony Capital and led by Grant Kelley, Apollo found a business primed for launching its first Asia real estate fund. 6 AIG LInES uP SALE TO InVESCO Asset sales continued at US insurance giant AIG with its private equity real estate business in Asia. PERE learned in November that Invesco had become the sole bidder for the platform, which had $12.4 billion of assets under management according to a January 2009 statement by AIG’s about its decision to sell it. 7 HARVARD, CIC EnD FunD SALE TALKS Harvard’s proposed sale of secondary fund positions and other assets to China’s $300 billion sovereign wealth fund drew significant attention. The one-month flirtation between the two parties was reported to have happened between August and September, but ultimately a deal never happened. No official reason for the negotiation breakdown was revealed. 8 MSREI CLOSES KOREA OPS As the year drew to a close, Morgan Stanley Real Estate Investing (MSREI) decided to shutter its Korea operation. A source said MSREI no longer saw Korea in its investment strategy for Asia, which had become predominantly focused on ‘value added and distressed plays in the developed markets and strong growth plays in the emerging markets’. 9 KOREA SWF APPOInTS PARTnERS GROuP The National Pension Service of Korea wasn’t the only sovereign entity from Korea to increase its real estate exposure in 2010. In July, Korea Investment Corporation, the $30 billion sovereign wealth fund created five years ago, appointed Partners Group to advise it on investments, particularly restructuring and recapitalisation opportunities. 10 in 2010 MACQuARIE AGREES TO PRESIDIO TAKEOVER The Australia banking heavyweight looked set to increase its real estate capital raising capabilities by acquiring San Francisco- and Chicago-based Presidio Partners in September. The deal, which would see Macquarie inherit a 19-person team with a track record of raising a combined $30 billion from 390 institutions, was expected to be completed by the start of 2011. 2010 AwArds & AnnuAl review | PERE 57
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2010AWARDS & AnnuAL REVIEW - PERE

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