The saga of Trophy Property Development Fund, once the pride of one of China’s hottest fund managers, continued to unfold last week as 31 out of the $1 billion fund’s 145 limited partners unloaded their holdings to Partners Group.
The relatively rare secondary market deal makes Partners Group the second-largest investor in the China real estate fund, which has been managed by Venator Real Estate Capital Partners since the group took it over from Winnington Capital in 2013.
Fund Problems Related to Shui On Struggles
Winnington, which was founded by Kenneth Hung – a brother-in-law of Shui On Land Chairman Vincent Lo, was forced to restructure the Trophy Property Fund when it became apparent that projects that it had invested in were unlikely to be completed during the lifetime of the fund, and that at least some of the projects were over budget.
As part of that restructuring, management of the Cayman Islands Partnership was handed over to Venator Real Estate Capital Partners (Hong Kong) Limited, which is led by Philip Mintz, former Asia head of real estate at Warburg Pincus.
Shui On Land has continued to struggle in recent years with the developer being forced to sell off an equity stake to Brookfield last year, and to dispose of assets in Chongqing and Shanghai as investors continued to punish its stock price. This year the company continues to attempt to make good on a plan to take subsidiary China Xintiandi public to raise further capital.
Stake Sale Part of Post-Winnington Restructuring
The secondary transaction appears to coincide with a restructuring of the fund that was specified in an agreement between the shareholders of the fund and its managers, which arranged for the investment vehicle to trade its minority stakes in Shui On developments in Shanghai, Wuhan and Chongqing for majority ownership of a residential project being developed in the Xintiandi area by the Hong Kong developer. That exchange is now thought to be taking place in during the third quarter of this year.
An account of the restructuring published earlier by Private Equity Real Estate noted that by arranging this asset swap the limited partners in the fund, which include TIAA-CREF, the San Diego County Employees’ Retirement System and University of Texas Investment Management, hope to salvage as much as $750 million of value from Trophy’s original equity.
As part of the restructuring, the horizon of Trophy fund was also extended to 2017 from 2015.
According to an article by Dow Jones, following the sale Partners Group will hold a 12 percent stake in Trophy Property. No details of the financial consideration paid to the exiting stakeholders were disclosed, but Partners is said to have offered a fixed rate for each stake according to shareholding.