A: Yes, just about two times leverage.
We have raised four China-centric funds. But we also run four funds in the U.S. and three European funds to (invest in) the U.K.
Our first China fund was US$200 million, raised in 2005. The second fund was raised in 2007 with US$800 million. In 2009, we raised our third fund of US$430 million. Last year, we completed our fourth China fund with US$1.025 billion. We could have raised a lot more, but our investors capped us at this number.
Q: How long is your fund life, and what’s the status of your early funds?
A: They are seven to eight years, with some extension options to extend up to 10 years. Our first fund is fully exited. Our last remaining asset (in that fund) is a joint venture with Swire Properties called the Village of Sanlitun in Beijing. Swire Properties just purchased our stake (in the JV), so we are fully exited.
Q: Did you make your investors happy?
A: The first fund has an IRR (Internal Rate of Return) ranging from the mid- to high-twenties (around 25% to 29%). We returned 2.3 to 2.5 times of (our committed capital).
Q: Do you have a performance benchmark?
A: We target about 20% on an annualized IRR basis, before fees. Depending on the length (of the fund), that means about 15% to 17% net of fees. We hope we can achieve 20% or higher. That’s what we did with Fund I, and our Fund III will do very well as well.
Q: About 37% of your portfolio is in residential property, and over 60% is located in Mainland China. How do you usually exit?
A: We have sold to local developers, to public companies. We are also considering doing a REIT (Real Estate Investment Trust) in China, which I think would be a highly viable exit route sooner than many people think, in less than five years.
We believe that Chinese investors will (embrace REIT) if the tax laws are changed so that investors can (enjoy) similar levels of income compared to holding properties directly. Currently, there is no REIT (products) in China. We think having a vibrant REIT market will smooth out the property price volatility.
About Goodwin Gaw:
Goodwin Gaw is managing principal and founder of Hong Kong-based private real estate management firm Gaw Capital Partners, which manages US$7.5 billion. Gaw is also vice chairman of Hong Kong-listed property investment firm, Pioneer Global Group, and president of U.S.-based real estate investment firm, Downtown Properties.