RMB Real Estate Funds - The Future of Private Equity Real Estate in China

The People’s Republic of China (“China”) continued to achieve a growth rate of above 7%. The world’s 2nd largest economy had experienced a steady growth in domestic consumption, retail spending, wage increase and rate of urbanization in recent years.

China had also started to reform its financial sector. It had tried to increase the flow of funds through the setup of an offshore Renminbi (“RMB”) trade center in Hong Kong and other parts of the World, relaxing investment restrictions for the insurance sector, and the encouragement of outbound investments via state enterprises.

Coupled with the continued growth in the real estate sector and internationalization of the RMB, institutional investors are continuing to monitor China’s potential in the real estate fund management sector. Ways to tap the domestic RMB market as a source of capital have been an area that many international institutional investors are keen to explore.

This paper will provide an introduction to the RMB Real Estate Fund1 market in China, comment on the industry’s progress, and discuss its future opportunities.

This report is authored by Kailong Real Estate Investment.

중화인민공화국("중국")은 7% 이상의 GDP 성장율을 계속해서 달성하고 있다. 세계 2위 규모의 경제 대국인 중국은 최근 몇 년 동안 국내소비, 소매지출, 임금인상 및 도시화율의 꾸준한 증가율을 보여왔다.

중국은 금융부문의 개혁돠 시작했다. 펀드의 흐름을 증대시키기 위해서, 중국은 홍콩 및 기타 해외 지역에서 역외 위안화 무역센터를 설립하고, 보험 부문의 투자 제야을 완화시켰으며, 국영기업을 통한 해외 투자를 장려하였다.

부동산 부문의 지속적인 성장과 위안화의 국제화가 이루어지면서, 기관투자가들은 부동산 펀드 운용 부문에서 중국의 잠재력을 지속적으로 주시하고 있다. 많은 국제적 기관 투자가들은 중국 국내 위안화 시장을 자본의 원천으로 활용할 방안을 모색하는데 지대한 관심을 가지고 있다.

본 페이퍼는 중국의 위안화 부동산 펀드 시장을 소개하고, 업계의 발전에 대한 논평을 제시하며, 향후 기회를 논하고자 한다.

본 페이퍼에 대한 권한은 Ivan Ho, Kailong에게 있습니다.

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 REAL ESTATE YIELDS: A GLOBAL ANALYSIS

The post-crisis economic landscape has been very kind to real estate, particularly prime property in ‘gateway’ cities. Fiscal and monetary stimulus has produced some economic growth but no self-sustaining momentum has developed. Deleveraging in the OECD has been a headwind, as has crisis in the euro zone. Nevertheless, there has been sufficient economic activity to support rental values in the key property investment markets whilst super-loose monetary policy has driven the ‘search for yield’.

The so called ‘new normal’ of low growth, low inflation and low interest rates is very good for high grade real estate. Quantitative Easing (QE) is designed to boost the value of risky financial assets and feeds directly into activity and remuneration in the large financially orientated cities such as Hong Kong, London and New York. It has other effects as well. Countries in which central banks have expanded their balance sheets aggressively, the US, UK and Japan, have seen the value of their currencies fall. Their property markets, re-priced internationally if not domestically, have attracted strong inward capital flows. Emerging markets have seen hot money inflow which has stimulated the acquisition of local real estate assets due to excess liquidity and overseas real estate assets due to currency appreciation. Finally, even the most defensively minded investors cannot tolerate de minimis returns from cash for long, particularly given the potential link between QE and inflation, so family offices and sovereign wealth funds have been targeting real estate as well.

This report is authored by Grosvenor Group. 

INREV STYLE DEFINITION ANALYSIS IN ASIA PACIFIC - Testing and Validating the INREV Fund Styles Framework for Asian Funds

The first INREV style definition was released in 2004, then revised in 2007, 2009 and lastly in February 2012, when INREV felt the need to provide new definitions to the industry, in order to be able to compare risks and

performance in funds in Europe. The core funds definition (LTV>40%) was partially derived from ANREV feedback on Japan core funds. ANREV adopted the previous style definition in 2012.

In 2012, ANREV first attempted to review INREV style definition when publishing the Investment Intentions Asia Survey which contains a focus to gain insights from respondents on how risk should be assessed in Asia Pacific. Respondents were asked whether they agreed with the new INREV style classification parameters. Generally respondents appeared to consider the INREV style classification as a good start. The majority of respondents from the survey, agreed that the INREV style classification parameters were relevant when assessing fund styles in Asia, with 94% of investors along with 90% of funds managers and 78% of fund of funds managers.

Respondents believed that in order to create global uniformity the above style classification should be adopted. However, only limited investment strategies should be qualified as core. Some respondents specified that the strategy is much more complicated than the simple classification, for example, Japan generally requires higher leverage even at the core level to produce meaningful returns. As Asia GPs lends itself to more value add type exposure and development, perhaps a wider range on that measure are required. The goal of this paper is to test INREV core definition against ANREV core funds in order to provide context to the ANREV decision to adopt the INREV style definition. Therefore ANREV have collected a dataset comprising detailed information for all core funds in December 2013. This snapshot describes the analysis of the data obtained from the ANREV Fund database.

If you have any questions about the release, please contact Amélie Delaunay at [email protected]