Fund manager targets world’s second-biggest property market as economy emerges from recession

KBC Asset Management is launching a £500m Japanese property fund the first step of a move into property fund management in the Asia-Pacific region.

The Irish group, which manages the £550m Lothbury Property Trust in the UK, is marketing the fund to investors in the UK, Japan and South Korea. It will be launched in March.

Its aim is to capitalise on growth potential as Japan emerges from a 15-year recession and its government changes the way it manages its property estate.

KBC will oversee the fund’s investment strategy from the UK. It has formed an alliance with Japanese asset manager Mac Investment Management, which will provide the local knowledge and manage the properties.

It is one of the first western fund managers to launch a Japanese fund, rather than investing in the country through a pan-Asian fund. Last year, Morley launched a $500m (£250m) Japanese fund.

Country-specific funds with local teams on the ground are the preferred investment vehicles for property funds of funds and multi-managers, which are increasingly allocating their money to the Asia-Pacific region.

KBC’s fund will use a ‘core active’ strategy similar to its Lothbury fund, investing in prime office, retail and industrial property, or property that needs minor refurbishment and asset management.

It will invest in Tokyo, where KBC Financial Products has an office, as well as in the Fukuoka region on Japan’s southern island of Kyushu. Fukuoka is a distribution hub because of its proximity to the Korean peninsula and the Asian mainland.

KBC has identified a seed portfolio of 15 assets, but has said it will only decide what to purchase once the fundraising has been completed.

The closed-ended fund, which will have a lifespan of 10 years, will aim to provide returns of more than 12%. It will have a very good level of gearing.

Simon Radford, KBC’s chief executive and the fund’s manager, said: ‘The economic story is good, as the country is coming out of a recession, so we’re expecting good GDP growth. The property market is also coming out of a long-term downturn and is into a growth phase.

‘There is a huge shortage of supply. It’s the second-biggest property market in the world, but only 17% of the supply is prime, compared with 75% in the US, which makes it attractive for us.’

Radford added that the government is selling off property assets, which would provide the fund with a good investment opportunity.

‘The government has a huge budget deficit, and so is about to start a sale-and-leaseback initiative,’ he said. ‘Our partner has good links in this area, so we would hope to get in on the deals quickly.’

He said that it would eventually seek to launch additional funds in the region. KBC is likely to target China, Taiwan and Hong Kong.