ING Real Estate's fund of funds business goes global and Asia Pacific products continue to accumulate. In Europe, lower expected returns from core direct new fund launches towards distressed opportunities, alternatives assets and sector-focused strategies. Richard Lowe reports

Today's capital raising environment is a tough one and while there are still new real estate funds coming to the market investors are seeing a distinct shrinkage in the number of offerings.

"There seem to be fewer funds at the moment," says Stein Berge Monsen, senior portfolio manager at Vital Eiendom, which manages the real estate investments for Norway's biggest privately-owned life and pension insurance company, Vital Forsikring. "A lot of the newcomers in the market are definitely wiped out."

Graham Burnett, head of property at the Universities Superannuation Scheme (USS) in the UK concurs: "There is not much around at the moment. It is not a good time to raise funds."

Perhaps the biggest surprise in this trying market environment is the launch of ING Real Estate's global fund of funds product, the Global Osiris Property Fund. Its inception was made possible through a €150m seed investment from the London Pension Fund Authority (LPFA), which as reported in IPE Real Estate was originally intended for a segregated global real estate mandate.

It seems ING Real Estate has satisfied the requirements of the LFPA, which is to provide a structure that can invest in direct real estate on a tax-efficient basis, across Europe, Asia and the North America without resorting to listed exposure.

"The structure of this vehicle is ideal for us," says Vanessa James, investment director at LPFA. "It will be ideal for most pension funds… it is going to be a good vehicle for European or even Australian pension schemes, because [ING Real Estate] deals with what is an incredibly complex asset class."

What ING Real Estate receives in the way of further commitments from pension funds is to be seen, but Damien Smith, fund manager for Global Osiris, believes the product will appeal to larger institutions as well as the traditional target of fund of funds vehicles: medium-sized and smaller investors. The reason? Global Osiris claims to deal effectively with what is one of the most onerous aspects of achieving a truly global real estate portfolio - taxation.

"ING Real Estate Select has been running fund of funds products now for the last six or seven years. Traditionally, they have been targeted towards investors who are seeking higher levels of diversification with smaller amounts of capital," he says. "What we may find is that when we invest internationally, especially into Asia and the United States, the taxation compliance issues and reporting issues and the administration of those investments are more burdensome.

We may actually get some investors with larger ticket sizes or larger levels of investment than we would have otherwise expected, because I think a number of the institutional investors are realising the amount of time it takes to actually administer a portfolio of these sorts of investments."

European specialisation
There seems to be an increasing sense that investors are shying away from balanced core funds in favour of more specialised funds - be it distressed debt, sector-focused, alternatives - in the current market downturn.

Zurich-based Swiss Capital Alternative Investments recently announced the launch of another global fund of funds vehicle. Unlike ING Real Estate's latest offering, the SC Alternative Real Estate Fund is part of its growing single-theme hedge fund of funds family, and will invest in managers specialising in the indirect and derivatives space or those who can capitalise on distress and asset-based lending.

Continuing the distressed debt theme, Talisman Global Asset Management and Cambridge Place Investment Management have launched their co-managed Talisman/CPIM European Debt Opportunity Fund, which will invest in a range of asset-backed securities across Europe. The fund has been seeded with capital commitments of €50m and is targeting a return between 12% and 15% over its closed-ended five-year time horizon.

And the vultures continue to circle the vulnerable UK commercial market, with Frogmore, for example, having closed its second opportunity fund with £400m (€500m) of capital raised.

Other more sector-focused funds include Valad Property Group's new French industrial vehicle, which closed in July with €500m of equity raised. Grainger's UK residential fund has seen further investment from UK and foreign institutional investors, including USS.

Alternative sectors are seeing capital inflows thanks to their perceived defensive qualities during market downturns. Not only were UNITE's student accommodation fund and Quintain Estate's healthcare fund, the Quercus Unit Trust, the two top performers in the UK from June 2007 to June 2008, according to International Property Databank (IPD), but both have enjoyed recent capital inflows, including commitments from USS.

ING Real Estate has launched €800m pan-European healthcare property fund, open to institutional investors and targeting a balanced portfolio of cure, care and commercial healthcare assets, mainly in Germany, France and the Netherlands. Depending on opportunities, the fund may also invest in Italy, Spain, Austria, Belgium and Sweden.

Meanwhile, HSH Real Estate and Australian listed investment company Mariner Financial have set up a joint venture with the aim to acquire and manage portfolios of nursing homes and similar care aged-care assets in German. A fund structure will be put in place so that shares can be placed with Australian institutional investors.

Even agricultural land is on the menu with Schroder Property's latest fund offering, which will invest in private equity companies, farm management businesses, as well as land-related equities, commodities and funds. The asset manager is hoping to tap into growing global demand for food production, targeting a 10-15% annual return over a five to 10-year investment period.

Asian opportunities continue to grow

If you wanted evidence that capital flows into Asia Pacific continue to be strong despite slowdowns in the west, look no further than AEW Capital Management's capital raising for its first direct commingled fund in the region, bringing in $558m (€374.7m) of equity, surpassing its target of $400m. AEW Value Investors Asia will invest across sectors in a number of markets in the region, with a 50% weighting to the mature markets of Hong Kong and Singapore.

On the country-specific front, the marketplace is currently brimming with Indian real estate funds, although having spoken to UK consultants, the impression seems to be the vast majority of these are not suitable for pension funds. One of the latest products to join the fray is a joint venture between UK fund manager Cordea Savills and local developer Nichani Holdings. Lehman Brother Real Estate Partners, meanwhile, is aiming to enter into a series of joint ventures with India's second largest development company, to develop office space in Mumbai.

Two Japan-focused funds are also on the cards, both closed-ended. MPC Capital is launching its first fund targeting the country, which will invest in several entertainment, office and retail complexes in different locations, while KBC Asset Management has launched a $1bn fund investing in the office, retail and industrial markets of major cities. Lastly, CapitaLand, Southeast Asia's biggest developer, has set up a $1bn private equity fund to invest in Chinese commercial property projects.