Boutique real estate fund has sights firmly set on China
Like many global and local investors, Hong Kong-based boutique real estate private equity fund management company Arch Capital believes in the China story.
But at a time when most investors have set their sights on hard commercial assets, Arch Capital, with its niche real estate development, primarily focuses on residential development. It also invests in retail properties in inland cities despite mounting concerns about the oversupply of retail spaces.
Arch Capital was founded by Richard Yue, a former head of Investment at AIG Global Real Estate, and Philippines conglomerate Ayala in 2006. In 2011, Ayala swapped ownership interests in Arch Capital with The Rohatyn Group (TRG), an emerging-market-focused private firm with around US$7 billion in assets under management. The ownership swap resulted in TRG acquiring Ayala’s 50 per cent interest in Arch.
Ayala became one of TRG’s largest outside shareholders as a result of the share swap.
”With our partner’s background, we are different from other funds as we can focus on quality projects starting from the development level. We have developers’ DNA,” said Yue, chief executive of Arch.
In the past decade, funds raised by the firm and assets managed by it have totalled US$1.5 billion, with investments in more than 20 projects. It has exited about 15 of them.
The company is now in the final stages of completing its third funding of about US$400-500 million, with investors such as US-based Townsend Group.
About half the funds raised will be invested in Greater China, with the rest in Asia, ex Japan.
‘China is a treasure land,” said Yue, adding its political stability, sizeable economy and growing middle class as the top attractions.
“Infrastructure is closely linked with property development. The (mainland) government heavily invests in infrastructure and builds it for free,” said Yue. “Where can you find such a market in the world?”
On the firm’s investment strategy, Yue said the company has long been investing in the residential market, teaming up with local partners. But it has been diversifying into commercial and retail space since the central government began imposing curbs to cool the sizzling residential sector a few years ago.
“I may not agree that retail properties are facing an oversupply. It depends on whether you can find a right business format to cope with the environment,” he said, pointing out that in many second- and third-tier cities, people prefer street malls and department stores to shopping malls.
“We are still looking for opportunities,” he said.