ASIA - CITIC Capital, the Hong Kong-based fund manager part-owned by China's sovereign wealth fund, has confirmed the Townsend Group as a cornerstone investor for the $225m (€170m) first closing of its China Retail Properties Investment Fund.
In an email, Stanley Ching, head of CITIC Capital's retail group, said: "It was very important [to have a cornerstone investor], particularly one representing many pension funds' interests.
"It's a positive endorsement of the fund's strategy, as well as the manager's execution capability. We view it as a confidence vote from the investment community."
The target-$600m China retail vehicle is the fourth in a series of funds that have so far acquired 18 projects in mainland China with a combined value of around $3bn.
This new fund aims to exploit Chinese urbanisation by acquiring or co-developing retail and retail-heavy mixed-use assets in secondary and tertiary cities.
Its seed investment is a shopping centre in Changsha, capital of the Hunan province, but a relatively small city by Chinese standards, with a population of around 9m.
Ching believes under-urbanisation of secondary and tertiary cities to date will result in a significant increase in the trend, and improved infrastructure will make retail expansion in these cities smoother.
A report released last week by Cushman & Wakefield supports his optimistic outlook for the luxury retail sector, pointing to the outperformance of premium brands in the Chinese market over recent months.
Ching said: "The specific risks with lower-tier cities, compared with so-called first-tier cities, are higher execution risk due to the fact these cities are less exposed to international investors, and local rules and regulations that might be different from first-tier cities."
Local knowledge, contacts and relationships would help mitigate both risks, he added.
"More importantly, you must be willing to make firm commitment by building a comprehensive on-the-ground team comprising competent professionals at a similar standard as those in the first-tier cities," he said.
Although several unnamed investors have transferred to the fund from its predecessors, Ching acknowledged that changes in the investment environment - notably changes in investment focus and regulation - since the launch of the third fund had prevented some investors from committing capital.
"The fundraising environment all over the world is extremely tough," he said.
"At the same time, we have observed that investors are, or are in the process of, making more allocations and commitments to emerging markets, particularly to funds with specific investment focus."