China’s institutions slow to invest in RE(2)

China’s institutional investors, which together have $3 trillion in reserves, are taking a slow and cautious approach to private equity real estate, delegates heard at the PERE Asia Summit in Hong Kong.

Some of China’s institutional investors are waiting for the private equity real estate model to become “proven” before committing to funds, delegates heard at the PERE Summit Asia in Hong Kong.

Collin Lau, founder of BEI Capital, said on a panel session on Wednesday that he thought people were sometimes getting overly excited when they looked at China as a source of capital.

“It has $3 trillion reserves, and apparently it should be the single largest source of capital. But it will take quite some time for the system [to determine] its asset allocation,” Lau said. Many institutional investors, such as pension funds, were very conservative with where they place their money and will only commit to private equity real estate once they see it as a proven model, he explained.

China Investment Corporation will often be a groundbreaker in asset allocation, Lau noted. Pension funds will follow once they see the returns, and state-owned enterprises will start investing only much later down the line, he added . “It’s actually the system rigidity that matters more than how much capital is actually available.”.

Lau also predicted that it would take more than three years to get China’s institutional investors warmed up to private equity real estate in the region.

Lau's comments came as a poll taken at the Asia Summit saw 44 percent of delegates say that the institutional investor money coming from China would increase, as compared to 22 percent of votes for Korea and 14 percent of votes for Japan.

Whether in government or corporations or high-net-worth individuals, many Asian nations have managed to amass a large amount of wealth, Lau said. “Given its size, China is one of the wealthier.”

Even if China’s institutional investing does increase, it may not go to Asia projects, the panel suggested. Asian institutional investors are seeking more to diversify their real estate assets, looking especially at the US and Europe, according to John Saunders, MGPA’s chief executive officer for Asia.

“They look at the US and Europe and think [the assets] look demonstrably cheap,” Saunders said on the panel. At the same time, US and European institutional investors are attracted to the higher growth in Asia, and so are looking to make more commitments in the region, he added.