GT Financial launches mainland property fund

The open-ended fund targets raising up to $400 million during the next three years.
GT Financial Group has launched a dollar-denominated China real estate fund domiciled in the Cayman Islands.

GT Financial is wholly-owned by Poly Investments Holdings, a Hong Kong-listed conglomerate with a range of PRC activities. It is not related to the state-owned China Poly Group.

Targeted fundraising is $300 million to $400 million over the next two to three years. Maximum leverage will be 100% of net asset value.

The open-ended fund will invest by making direct purchases in first- and second-tier mainland cities, picking up commercial properties, retail shopping malls, industrial sites, hotels and car parks. The core investment will be office/commercial, with 50%-75% of allocations.

Opportunities GT has identified in Chinese real estate are predicated on high rental yields, which, at an average of 8.4% for major Chinese cities such as Beijing, Guangzhou and Shanghai, exceed major global city average yields that barely exceed an average of 5%. In addition, capital values in these Chinese cities are about a quarter of those elsewhere in the world.

Single project investments will be $10 million to $70 million. The first phase of purchases will be within first-tier Chinese cities, and will be broadened to smaller cities as the fund matures.

The investment advisor is its 100% owned subsidiary, GT Capital, a Hong Kong-based, SFC-licensed company, involved in asset management and brokerage.

The CEO is Albert Wong. He is also chairman of the supervising committee of the PRCÆs Boshi Fund Management. Previously, Wong was managing director of Sun Hung Kai Wealth Management and CEO of Associe Financiere Global Asset Management.

CIO for the fund is Dennis Chow, who previously worked as managing director of VC Asset Management. Head of research at the investment adviser is Byron Liu, formerly of Nikko Research Centre. Finding the properties will be a team of 32 experts who will be beetling around China looking for buying opportunities.

Projected returns of this new fund are 15%-20% per year, which will be achieved by way of rents and capital appreciation. Redemption fees are 6% of NAV for the first year, 4% during the second year and zero thereafter.

Management fees are 2% and 1.5% fee for Class A and Class B shares respectively, based on the fundÆs net asset value. Performance fees will be 15% per year. So the trade-off for investors is that they are getting liquidity in an illiquid asset class but at the cost of a NAV-based performance fee, based on independently-assessed valuations.

Administrator and custodian is Standard Chartered Bank. Property valuations will be carried out by Vigers and American Appraisal. The auditor is Deloittes and Sidley Austin is the fund's lawyer.

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