Noah launches China real estate fund
China's rapid economic expansion over the past decade has created a large pool of millionaires but onshore investment options remain limited. Those keen to avoid negative real interest on bank deposits, have traditionally put their money into stocks (at certain times) and property (most of the time)
Noah is now looking to target its network of wealthy individuals for a fund that will provide capital to cash-strapped local real estate developers.
"The trend of fundraising in the real estate sector has shifted from loan-oriented to fund-oriented, which provides investment opportunities for the near future," Jingbo Wang, founder of the third-party financial advisory company, told local media.
China is home to the world's fourth-largest population of high net worth individuals (HNWIs) - defined as people with investible assets in excess of $1 million.
In 2010, the total number of HNWIs reached 535,000, according to the Capgemini-Bank of America Merrill Lynch 2011 World Wealth Report. These people are already at the heart of Noah's business model. The US-listed company is a middle man in between wealth management providers and the wealthy. In addition to distributing financial products, it runs a RMB3.3 billion ($523 million) fund-of-funds.
The company's client base, just 930-strong when it first started, stood at 27,144 last year. This is seen as sufficient to support a real estate fund worth as much as RMB18 billion ($2.8billion). Sources familiar with the situation confirm that the fund was launched in March and is being raised in partnership with real estate services firm E-house.
"During fundraising, we always targets investors with investible assets of over RMB10 million," Wang told AVCJ in February. "Around 70% are entrepreneurs who wish to allocate part of their asset portfolios, maybe 20% to 30%, to private equity."
Chinese developers including Evergrande Real Estate, R&F Properties and Huayuan Property have already expressed interest in the fund. This should come as little surprise given recent government efforts to stymie lending to the real estate sector, with a view to cooling price growth. With weak capital markets preventing developers selling debt or equity, private investors have considerable leeway.
According to Greg Hyland, regional director at Jones Lang LaSalle, PE firms accounted for 39% of all investment in existing real estate assets last year, excluding land sales. Given that the liquidity of the Chinese market depends on a sometimes volatile combination of the macroeconomic environment and government policy, he expects developers to continue looking for more sources of funding in order to diversify risk.
"I think there is substantial demand for capital in the real estate sector," Hyland adds. "Bank lending is the major and traditional source but that is now tightened up, people have increasingly looked into trust companies and now private equity funds."
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