Partners Group buys $400m of stakes in Asia RE fund

Partners Group has built up a stake in BlackRock Asia Fund III, which has provoked criticism for its heavy weighting to Asia Square, a twin tower office development in Singapore.

Partners Group has become a major investor in BlackRock Asia Fund III opportunistic real estate fund, one of Asia’s largest real estate funds.

Partners Group has built up a position in the fund that equals 10 percent of the original $3.9 billion size. The firm purchased interests in the 2008-vintage fund from existing institutional investors over a number of deals and it is understood the latest deal closed earlier this week.

Partners Group declined to comment on the deals.

However the news demonstrates Partners Group’s undiminished appetite for buying into controversial Asian funds. In August, the firm bought 12 percent of the equity in Winnington Capital’s Trophy Property Development fund, a China development-focused fund that went awry shortly after attracting $1 billion in commitments in 2008.

Asia Fund III was initially raised by private equity real estate firm MGPA and BlackRock acquired the fund last year. Asia Fund III provoked criticism for its heavy weighting to Asia Square, a twin tower office development at Marina Bay in Singapore. The property accounted for S$2.97 billion ($2.33 billion; €1.84 billion) of the fund’s capital and today represents approximately 90 percent of its net asset value.

BlackRock could not be reached for comment.

Partners Group is understood to be positioning itself to take advantage of the fund’s liquidation, which is expected to occur in 2017. Although it’s considered unlikely that Asia Fund III will achieve an internal rate of return of 20 percent IRR and an equity multiple of 2x, (which is generally expected for real estate opportunity funds), it is expected to perform well relative to its vintage.

Like some of its peers, the fund’s initial investment period was extended to ensure it could put unspent capital to work in an improving market. While such an extension of the fund’s life would have impacted its IRR, it is nonetheless expected to generate an attractive equity multiple, possibly as high as 1.8x, one source familiar with the matter said.

“For the bigger investors, that won’t be a problem,” the source said. “In comparison to other funds of that vintage that would have lost equity, while this has taken a lot longer, it’s still a nice equity multiple. For its vintage, the fund might actually be pretty good.”

It is understood that the Partners Group purchases have been executed at a variety of discounts to NAV, from between 25 percent to 30 percent on at least one occasion, 7 percent on another and at par on another.

On the deal struck at par, one said: “They already had a position in the fund and I think they’ve been averaging in. There was a call that the Singapore office market is bottoming out and would take off from last year. There have been some really big discounts for this fund. Gradually, however, they’ve been dwindling away.”

Partners Group closed its second global real estate secondaries fund Wednesday. The firm broke its own capital raising record, attracting $1.95 billion of equity commitments from investors. The fund has already began investing, but it is unclear whether that includes the investment in BlackRock Asia Fund III.