The Asia real assets story

Asian private equity real estate funds have received cumulative commitments of more than $81.5 billion since 2003, according to AVCJ Research, a fraction of the $475 billion that has entered traditional PE over the same period. Yet given the prominence of real estate in Asia - not least as a function of the urbanization that continues to shape emerging markets - surely we are still only in the nascent stages of private equity's involvement with the asset class.

This time last year, The Blackstone Group had accumulated real estate assets in Asia of around $2.5 billion and committed the same amount to PE investments. These figures predated the close of the firm's most recent global real estate fund and the launch of its debut Asia vehicle, so the assets balance could shift still further.

Of the major global PE firms that are trying to establish themselves as multi-strategy asset managers, Blackstone has arguably made the most progress on real estate. Come back in 10 years time inspect their Asia allocations; direct exposure to the property market is likely to account for a larger share across the board.

Another area in which the global firms are building out their presence is oil, gas and minerals, driven by a similar desire to access stable, yield-driven returns as much as growth. These trends are already apparent in developed markets but they are filtering through to Asia, with several private equity firms in the hunt for assets being divested by Australia's mining giants.

High-end auctions aside, direct investments in energy and mining retain something of a frontier feel - reflecting the size of assets available, the level of specialization required to exploit them fully, the importance of dedicated local deal-sourcing teams, and the challenges of dealing with often opaque regulation.

Australia has seen its share of junior miners gain momentum via the public markets, and there may be an opening for PE now the commodities super-cycle appears to be turning and alternative sources of capital are hard to find.

Southeast Asia is now home to a couple of publicly-traded independent oil and gas explorers and, if private and corporate money continues to be deployed in such operations successfully, more of the geological and engineering talent working for oil majors in the region will spin out. PE investors can back this talent, as they have in mature basins in the West.

Arguments concerning oil, gas and minerals are underpinned by the reality that Asia is growth long and resources short. The likes of China, India and Indonesia will account for the bulk of new energy demand over the next 20 years and they are inclined to look for supplies on their doorstep.

The same fundamental need applies to infrastructure. It goes without saying that emerging markets in the region require roads, railways, airports, utilities, power generation and distribution systems, and telecom networks. The question is how and where can private equity provide this and get a satisfactory rate of return.

In terms of Southeast Asia, PE is still near the beginning of the story. There are needs that must be met and it remains to be seen how foreign investors fare when their interests are sandwiched between those of (sometimes dominant) local conglomerates and (sometimes protectionist) governments. In China, the story is being told by state-owned enterprises, with private equity foraging around the edges.
And in India, arguably the most attractive and most maddening of markets, the story seems to be told again and again, albeit with a slightly different narrators. Will a more mature investment environment emerge from the excesses of pre-2009? Fingers crossed for the current vintages.

 

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• Topics
• Real estate
• Infrastructure
• Greater China
• Southeast Asia
• GPs
• Real estate
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• Commodities
• China
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• The Blackstone Group
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