Chinese private equity firm KaiLong to boost size of open-ended RMB fund

Chinese real estate private equity firm KaiLong plans to enlarge the size of its first renminbi-denominated open-ended fund by nearly four times in view of the positive property market in China.

“We established the first open-ended fund in China by the end of last year, targeting income generating assets with an initial asset under management of 3.8 billion yuan (US$552 million),” said founder and chief executive Cheng Hei-ming.

The company targets assets under management of more than 15 billion yuan, Cheng said.

A mainland insurance company has invested more than 2.5 billion yuan and intends to increase its equity investment. He declined to identify the investor.

Private equity real estate funds are usually close-ended, with investment periods of five to seven years. On closing, the funds are liquidated and the investments sold.

Open-ended property funds do not have specific lifespans.

The fund’s first batch of assets under management comprise 10 stabilised business park and office properties in Shanghai, Chengdu and Dalian.

“It is like a real estate investment trust (reit) but it is not listed,” Cheng said.

KaiLong had planned to spin off its assets – including the business parks in Shanghai – as a reit for a S$200 million listing in Singapore in July 2015. However, the plan was called off.

The reit was planned to be denominated in both yuan and Singapore dollars and would have been the first dual currency reit listing on the Singapore exchange.

“The withdrawal was due to the drop in pricing caused by the yuan’s depreciation in October 2015,” he said.

KaiLong was established in 2004, with founding shareholders such as Citibank, Starwood, Cargill, Rockpoint, Secured Capital Investment, real estate investor Stephen Roth and Cheng.

“Before joining KaiLong, I was the general manager of Shui On Land. Stephen asked me to develop the fund,” Cheng said.

“ I always wanted to be an entrepreneur, I had tried investing in a florist shop but it failed,” he said.

After a few restructurings, KaiLong’s current shareholders are Cheng, the management team, D&J China, Warburg Pincus and PAG Real Estate.

Since 2010, KaiLong has established four funds totalling 1.5 billion yuan. The first fund was exited in 2013. To date, the company has invested more than US$2.3 billion in 42 real estate projects. Of these, 23 have already been exited.

The company launched its first US dollar fund in May 2015 after raising US$238 million.