“Boy, is it tough out there …” This was the response I received from a good friend who was trying to raise capital for an investment with one of the globe’s leading real estate developers. He had been doing the traditional capital-raising journey from Singapore to Abu Dhabi, then to Amsterdam and finally London. But, unlike in previous years, this trip was with little success. For many investors, the past six months has been a period of “firefighting.” The various sovereign wealth funds (SWFs), pension funds and investment management groups are being forced to handle a vast array of issues.
From the Current Issue
Hans-Martin Aerts is the head of Infrastructure Asia with APG Asset Management, which was founded in March 2008. The firm specializes in managing pension capital, offering asset management services to the pension funds of the government, education and construction sectors, and housing corporations in the Netherlands. Aerts is based in APG’s Hong Kong office, and he is responsible for managing infrastructure investments in Asia. Institutional Investing in Infrastructure editor Drew Campbell recently spoke with Aerts about Asian infrastructure markets.
Several months ago the situation was crystal clear — there was no decoupling, and, as soon as the United States sneezed, the rest of the world, including fast-growing Asian countries, caught the flu. The markets moved in lockstep, and there was no escape for investors. The proponents of this novel theory had to admit defeat, and there was no more talk in the press about decoupling. As the U.S. consumer retreated, Asian economies heavily dependent on exports were not expected to survive. Now that the dust has almost settled, the situation with regard to decoupling is not as clear as it once was, and there are some signs that this theory may be revived again
The Asian REIT market rebounded significantly during the second quarter after struggling in 2008 and the first quarter of this year, demonstrating the return of some confidence to the market. However, share prices have not yet returned to the peaks seen in late 2007. With a history of less than 10 years, the Asian REIT market may be less established than its U.S. counterpart, but Asian REITs — though not without flaws — are an investment vehicle worthy of note. Even the prospect of a REIT market in China coming to fruition in the foreseeable future may give property investors additional options.
I suggest that bank-sponsored real estate funds are, to borrow a phrase, going the way of the dodo. At the same time, as the void is filled, a new and stronger model will develop. The reasons are obvious, and the evidence is out there. There is a need to husband scarce capital, to channel capital to flow businesses, and to exit noncore, unscalable business lines. These are the drivers behind banks’ withdrawal from the real estate private equity business. It can be argued that investor concerns would have hastened this extinction just as well. These concerns encompass many of the issues that will find relevance in the new models.