SMBC to back first private RE funds in the US, Europe(2)

Japan’s second largest bank by assets has revealed to PERE it intends to expand its overseas fund commitments from Asia to Europe and the US before the year is out.

Sumitomo Mitsui Banking Corporation (SMBC), Japan’s second largest bank by assets under management, could make its first fund commitments in Europe and the US before the end of the year, PERE can reveal.

The bank, which manages JPY125 trillion (€885 billion; $1.22 trillion) of assets, has been making equity investments in Japanese real estate for about a decade. SMBC has a $15 billion real estate loan portfolio and a $600 million equity portfolio, split between open-ended private REITs and closed-ended, asset-specific funds.

The bank started investing in overseas property in 2011 and, to date, has approximately $80 million committed to two funds, based in Singapore and in Australia. The Singaporean fund is understood to be the ARA Dragon Fund II, a fund predominantly focused on Chinese real estate.

But going forward, SMBC will include European and American funds in its strategy .  “What we recognized in the global financial crisis was that we had been investing in just the Japanese market,” SMBC’s general manager of real estate finance Yasumasa Kai said. “So then our entire equity portfolio is very bound up in the Japanese real estate market cycle. For us, the basic motivation is to diversify our equity investments.”

To execute its overseas investment mandate, SMBC has a team of five professionals, based in Tokyo. They will be responsible for sourcing funds, typically blind-pool, private equity in structure.  “That is a way for us to have more variety in our overseas exposure,” Kai said.

“As a first step we would prefer core-type investment funds rather than opportunistic or value-added,” Kai explained. “Then once we get comfortable with the market, maybe we can go into the high-risk profile opportunities.”

While evaluating funds to bank, the bank also suggested it could do some direct investment in the US and Europe as well, potentially beforehand.

Japanese institutions are well-known for taking a long time to move into new asset classes, especially overseas. Japan’s Government Pension Investment Fund, for example, has been toying with the idea of investing in alternatives for more than three years, and only recently made its first-ever commitment by launching an infrastructure joint venture in February.

SMBC is one of the few Japanese institutions that has actually made commitments to overseas real estate. The bank targets returns of 4 percent to 5 percent from its domestic, REIT investments and the mid-teens from its domestic closed-ended funds. The bank did not reveal what returns it is targeting from its overseas investments.