The mantra of European pension funds looking at Asian real estate would once have been: they came, they saw, they hesitated.
Now that the argument for investing in Asian property has for most pension funds been won - with just a few still thinking about it - a more varied pattern is emerging. Where once international fund managers launched (it seemed almost daily) global megafunds with a strong Asian exposure, now we're seeing new funds for specific Asian markets, often launched by local firms.
Funds coming from within the region itself are targeting regional as well as overseas investors. Japan's Urban Corporation will launch a $487m (€315m) joint fund invested in office with Capital Realty. The partners plan to grow the fund, which has a target 15% return, to up to €1.2bn over a three-year period.
The fact that developers, rather than financial institutions, are behind the fund is a trend among home-grown funds. Notably, a $300m fund to be launched by Singapore developer CapitaLand focuses on mixed residential and commercial in a single market: Vietnam.
Even an exception to domestic player bias is a partnership with a local developer. Protego says it will raise €200m for the first closing of a Vietnam residential fund by June, with a focus on urban and coastal locations and the acquisition of five seed assets already in progress. The fund manager claims the eight-year vehicle will return 25%, citing strong GDP growth, population growth, stability and increased foreign direct investment.
Local funds, especially those focused on specific markets, have attracted more than local interest. The recent first closing of the Triseas Korea fund, launched in 2002 by Doran Capital and managed by a former market head of Morgan Stanley Real Estate Fund, secured commitments from the €1.52bn Danish financial services sector pension fund Bankpension and MN Services. The seven-year core-plus fund, which is 65% geared, is targeting an annual 15-17% return. It will invest in office and retail in capital Seoul and other urban centres.
There may be limited appetite among institutional investors in Vietnam and Korea, but the market to beat remains China, despite caps on foreign investment in Beijing and occasionally voiced doubt over the government's ability to maintain control over - and the timing of - the planned slowdown. Judging by the current offerings, these need large fund managers to attract assets and investors.
A planned UBS fund will invest $1bn in Chinese property. The fund is effectively a finance-raiser for a joint venture with Chinese developer Gemdale Corporation to build Shanghai residential, despite the Chinese government's efforts to control over-supply in that city. Its target size is $300m.
ING Real Estate likewise has a $700m Asian fund in the pipeline focused on China and Japan. It follows the launch of two earlier funds last year. The fund manager is also planning a Japan-specific vehicle and a second, $700m Chinese residential fund, which may also invest in commercial.
This combination of investment in mature and emerging Asian markets will likely appeal to pension funds such as AP3, the SEK224.9bn (€24bn) third Swedish buffer fund, which is looking globally to diversify 50% of its property portfolio into European and Asian real estate.
"It will take time to build this portfolio and we just started with international investments [in Europe]," says Christina Kusoffsky Hillesöy, communications manager for the scheme. "The Asian investment will mainly be mature markets but emerging markets are not excluded.
Even for larger funds, risk management is important. That explains why Patrick Kanters, managing director of APG (formerly ABP) has said he will divert investment to mature Asian markets such as Hong Kong, where the scheme has an office, and Australia.
Few traditionally cautious investors are ready for India's $57bn real estate market - and few major fund managers are offering exposure. Deutsche subsidiary RREEF, for example, which recently entered the market and has committed to spending $1bn over the next three years, has ruled out an India-specific fund for the time being. One of the exceptions is US fund manager 3i, which in April said it had raised $1.2bn for its Indian infrastructure fund comprising power companies and ports against a $1bn target from a global "high-quality and well-diversified" investor group. The group has a joint venture partnership with the state-owned India Infrastructure Finance Corporation aimed at funding infrastructure projects.
Red Fort Capital, which already has one India fund based in the Cayman Islands, is launching a second, $800m fund. The Red Fort India Real Estate Fund II, which is expected to close in June, will invest across residential, commercial, retail and hospitality sectors.
As with other markets in the region, domestic fund managers are further down the road. Axis Private Equity in April closed its Indian infrastructure fund with $150m, aiming at a target size of $500m.
Which pension funds are most likely to invest in the terrain of private equity firms such as Blackstone, and domestic funds launched by ICICI, Kotak and HDFC? The adventurous, in short - and even they appear to have a greater appetite for pan-Asian funds or direct investment via joint venture.
The California Public Employees Retirement System (CalPERS), exceptionally, included an Indian investment within a recent $860m splurge of investment in comingled funds in local and cross-border real estate. The vehicle, the IL&FS fund II, invests in new development projects across India.
New development is also the target of SITQ, a subsidiary of the CA$237bn (€175bn) Caisse de dépôt et placement du Québec, which is negotiating a joint venture to develop office in Mumbai and Delhi. The scheme plans to allocate 15% of its portfolio to Indian real estate within five years.
The €217bn APG (formerly ABP) reportedly plans an investment in India by the end of the year. Michel Meijs, a spokesman for the fund, said: "The year is long, and the chances of investment are very big."
Despite apparently more rarefied appetites among Asian investors, pan-Asian funds are still being launched, with appeal to the uninitiated and inexpert. AIB's recently launched Macro Trends Fund Asia, which targets both private clients and pension funds, will invest in mature markets such as Hong Kong, Taiwan, Singapore, Japan and South Korea and in emerging economies such as China India and Vietnam. The fund will have a fully invested target size of $2.5bn.
This is the kind of Asian exposure likely to be pursued by investors such as the Berkshire local authority pension fund when it eventually takes a long-planned leap into global diversification.
Having mulled over the idea for the past year, the scheme has yet to make a decision - although pension fund manager Nick Greenwood suggests the delay has less to do with appetite for Asian real estate than with the convoluted decision-making processes of public UK pension funds.
"Slowly, surely we'll invest in a global real estate mandate," he says. "Otherwise we'll end up with an unstructured portfolio. The bureaucracy drives me mad."
He confirmed that he remained "very much in favour" of investing in global including Asian, markets. "The question isn't whether but how, and how much," he tells IPE Real Estate.