Q&A: Gaw Capital Partners’ Christina Gaw
Hong Kong-based real estate investor Gaw Capital Partners has leveraged its knowledge and networks to expand into technology and education. Christina Gaw, a managing principal, explains how
Q: What led Gaw Capital to participate in asset classes beyond real estate?
A: The premise of Gaw Capital is to be a dedicated real estate private equity platform, but as the world changes the role of real estate changes, we have gained exposure to different types of investment. These may or may not be completely related to real estate; and we have used our own money to make some of these investments. For opportunities that are directly related to real estate, we have gradually started to invest in those with broader pockets of capital. Meanwhile, the investment pipeline has grown with the emergence of proptech. This trend was more prominent in the US and Europe 6-7 years ago, but as opportunities began to appear in Asia Pacific, we have been able to utilize fund capital to invest in real estate-related asset-light companies.
Q: How significant has ESG [environment, social, and governance] been in this?
A: ESG is an important factor. We started looking into it in 2014, encouraged by our European investors. Nobody was really talking about ESG too seriously in Asia at the time, and it was hard to fully understand what it entailed. A lot of things we were already doing as a high-integrity investor, but they weren’t always being documented. Now there is a big focus on ESG globally. The UN estimates that real estate accounts for about 40% of global energy consumption and one-third of carbon emissions. We must play our part as a real estate portfolio manager and establish new goals to improve energy efficiency in our assets. Technology development has created more opportunities to do that, so it’s natural for us to dig deeper. We made some investments, built up a track record, and this allowed us to introduce separate account mandates and then a separate vehicle devoted to this innovative area of investing for ESG related proptech in Asia.
Q: Must all investments deliver something to the core real estate business?
A: We select companies with business growth that hinges on real estate usage, but they don’t necessarily have to use our platform. One of our earlier direct investments was in Switch Automation. It uses a combination of motion sensors and data analytics to help companies figure out how much space they really need, and also focus on energy efficiency by tracking people movement and adjusting control switches accordingly.
Q: You have also invested in areas such as online property listings (Beike), food delivery (Candao), and telemedicine (Tencent Trusted Doctors, TTD)…
A: There are direct links to real estate. With Beike, we got to know the senior management team through a real estate transaction, but it is China’s largest nationwide online property sales portal, and there are direct synergies with the real estate sector. Food delivery growth has led to the creation of cloud kitchens, which is another new way of utilizing warehouses. It ties into changing consumer habits. As for TTD, it operates an online platform and offline clinics, so there is a link to real estate and the use of space.
Q: Gaw Capital has an education fund as well. What was the thinking behind that?
A: While we are venturing into certain asset-light opco investment areas, the vast majority of what we do continues to focus on direct links to the real estate sector. It’s the same in education. Schools need a lot of real estate space, and good school operators are very sticky tenants, which has become an attractive investment area for certain investors who also focus on impact investing. With the growing affluence in Asia and the focus people have on their children’s education, the sector has generated very good returns over the past decade.
Q: Is education real estate an underpenetrated area?
A: It’s not yet a mainstream segment in Asia. However, there have always been successful education-related real estate platforms in the US and Europe that actively and successfully transact within the private equity space. Now in Asia as well, it is not uncommon to see real estate developers in education or private equity firms in education businesses that include real estate. Several Chinese real estate developers have large education businesses, and they are not distinctly separated from the real estate platforms. Companies evolve over time and enter different areas. The education platform is only part of what we are doing, just like our logistics platform, our data center platform, and our earlier days China retail outlet mall platform. We are increasingly focused on thematic platform investing around the region, creating scalable platforms in ecosystems that relate to changing consumer habits and new lifestyle trends.
Q: Are there certain things you wouldn’t do in education?
A: We are selective. For example, the K-12 space in China is highly regulated, so instead, we opened a dedicated art school in Guangzhou named Stellart. If you go into a niche area, the supply-demand imbalance can favor the operator. With the growth of creative industries, there is a growing demand for dedicated art institutions to nurture talented and creative students. We are also looking at opportunities in vocational education where demand is strong.
Q: Gaw Capital has invested in areas like co-working spaces and apartment rental platforms where operators have run into problems. How do you get comfortable with the business models?
A: The WeWork model actually works; and co-working spaces work in a world where people are looking for flexibility in their workspace. What didn’t work was the valuation the company fetched. We didn’t directly invest in WeWork; we invested in Naked Hub as a $250 million valuation. When WeWork bought Naked Hub for $750 million, we received a portion of the proceeds in cash. From our point of view, the success of the business model in some of these areas goes back to whether one owns the real estate, which allows more control during unexpected events such as COVID-19 or market downturns. Owning assets means better control over execution and costs.
Q: To what extent are you active in Southeast Asia?
A: Right now, we don’t do a lot in Southeast Asia apart from Vietnam. We were one of the first foreign managers to return to invest in Vietnam in 2014, and we did very well with our investments. Vietnam is an interesting market now because it is a clear beneficiary of supply chain relocation arising from the Sino-US trade war. Even before that, though, the country was a key manufacturing hub for Korea, with many large conglomerates like Samsung and LG operating there. Vietnam is in a good place for growth right now: a young population, increasingly well-educated with strong language skills, low-cost labor, and an easy place from which to export. Many more interesting opportunities are emerging.
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