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Merrill, CLSA Raising Big Asian Property Funds

Reuters
Sunday, 13 Apr 2008 | 11:17 PM ET

U.S. investment bank Merrill Lynch and Asian brokerage CLSA are separately raising investment funds focused on Asian property, indicating continued confidence in the region's economies, executives from the two companies said at the weekend.

Cranes stand on a construction site in front of newly completed apartment buildings in Beijing.
Greg Baker
Cranes stand on a construction site in front of newly completed apartment buildings in Beijing.

Merrill Lynch is raising a Pacific Rim real estate fund worth around
$2.5-$3 billion, Damian Chunilal, Merrill's head of Pacific Rim origination, told reporters on Sunday.

It will invest in a variety of types of property across the Pacific Rim, including in India, Australia, Japan and the rest of Asia, he said.

CLSA Asia-Pacific Markets is raising a new roughly $1 billion pan-Asia property fund that will focus on China, Japan, Taiwan, Hong Kong and Singapore, Chairman Rob Morrison told Reuters.

Both executives were speaking on the sidelines of the Boao Forum for Asia, being held on the southern Chinese island province of Hainan.

The launch of the funds comes at a time when many investors are looking to Asia as a safe haven in the wake of the credit crunch set off by U.S. subprime woes, as others shop for deals in the United States and Europe.

Merrill's fund is part of an increasing push by the largest U.S. brokerage to build up third-party funds to do principal investing, Chunilal said.

"That's very much going to be a model that's repeated in the future with different types of funds," he said. "That's something we are very actively exploring at the moment."

Safe Haven

The firm is also currently raising a European real estate fund, Chunilal said, without providing details. He added that other new funds could focus on private equity and possibly infrastructure.

Morrison said CLSA's fund would look to invest about 20-30 percent of its cash in China. CLSA is the Asia-focused brokerage and investment banking arm of French bank Credit Agricole.

Other global investment banks are also planning to launch funds for Asian property. UBS recently said it plans to launch a roughly $1 billion fund for investing in China. Morgan Stanley and global investment firm Blackstone Group are also active in real estate in the region.

While European and U.S. property markets are waning in the wake of the global credit crunch, Asia still shows signs of strength, recording a 26 percent jump in direct property investment to $121 billion in 2007, according to consultant Jones Lang LaSalle.

Chunilal said that although Asian financial markets had also taken a hit from the global credit woes, he thought that their economies generally would weather the storm relatively well, in part because liquidity in the banking system remained adequate.

"We still see significant growth momentum in this region, which I think will survive even if current headwinds in the U.S. slow things a little bit," he said.

CLSA's Morrison said that the recent subprime woes made Asian markets something of a safe haven, as declining interest rates and the resulting fall in the dollar prompted investors to pull money out of the United States.

"Asian property as an asset class is a direct beneficiary of the Fed easing. So the more the Fed eases, the more liquidity is going to end up in Asian markets chasing Asian assets," he said.