CDL's fund management platform targeting US$5b in assets by 2023

Singapore

THOUGH admittedly "late to the game", City Developments on Wednesday said it is planning to build its own fund management platform, with a target to manage US$5 billion in assets by 2023.

This is to tap into some US$5 trillion in private capital from institutional investors in the real estate industry. Management also signalled that it will be "very different" from what they have done with their three Profit Participation Securities (PPS) platforms - which are versatile instruments that can achieve multiple objectives including fund-raising and structuring transactions to provide an attractive risk-return profile that investors are willing to put capital to.

At its results briefing, CDL's new group chief investment officer Frank Khoo, appointed in January, said the US$5 billion target does not include the approximately S$3.6 billion already invested in its PPS platforms.

Speaking on the rationale, he said: "It allows CDL to play in both the listed and unlisted space. So obviously the pie gets a lot bigger from (the) US$1 trillion (listed equity and real estate investment trust market) to a US$6 trillion dollar market.

The fund management platform also allows CDL to diversify its client base to include major institutional investors such as pension funds, insurance companies and sovereign wealth funds.

These investors continue to allocate capital to unlisted real estate funds because of how well they have performed over bonds, equities and private equity.

"If you look at the three-year return for real estate funds, they are actually returning about 14 per cent on an annualised basis."

He further clarified that it does not include moving any assets from the group or its units such as Millennium & Copthorne and CDL Hospitality Trusts into the fund management platform; neither does it involve acquiring other platforms, although this would help it grow a lot faster.

Some 60 per cent of the platform will invest in "core and core-plus" assets that generate stable and constant income stream with strong cash-on-cash return and which are less reliant on capital appreciation. These are likely to include residential, office and hospitality assets.

The remainder will comprise value-add and opportunistic investments that generate higher risk returns through the formation of joint ventures and club deal initiatives focused on bigger development projects.

The group aims to launch its first series of close-ended, co-mingled funds focusing on core, core-plus and opportunistic real estate investments in the Asia-Pacific by 2019.

Assuming half of the AUM is made up of equity, and the remaining debt, CDL said it is likely to take a 20 per cent stake in the equity portion.

To start, CDL would probably have to seed the fund with some initial seed investments before inviting other investors to come in.

"One of my views is that we could actually - if the market allows us - open an open-ended core fund, which gives us perpetuity, so we can keep growing this core fund," Mr Khoo said.

CDL has started hiring manpower. Mr Khoo says that as a rule of thumb in the fund management space, one headcount is needed to manage every US$100 million in AUM.

CapitaLand, Keppel Corporation and Global Logistic Properties are some real estate companies that have established their own fund management platforms.