Since the start of the year, about five listed companies have announced proposed privatisations. The largest of these by market capitalisation are Paragon REIT and Japfa . Proposals to privatise SLB Development, PEC and Econ Healthcare are also underway.
However, on Feb 28, the Monetary Authority of Singapore’s (MAS) Equities Market Review Group introduced measures to encourage issuers to list their companies on the Singapore Exchange (SGX).
What happens when companies go private? For one, despite the lack of exits via the SGX, private equity (PE) players continue to use Singapore as a base.
Rava Partners was established in 2020 by Hillhouse Investment as its real assets platform. Rava specialises in logistics, industrial, life sciences, healthcare, digital infrastructure and other high-growth asset classes.
Hillhouse Investment became a household name in Singapore following its offer to take Global Logistic Properties (GLP) private in 2017. GLP was eventually privatised in January 2018.
In 2022, GLP Capital Partners (GCP) was formed when GLP reorganised and transferred its global fund management business to GCP. At the same time, GCP also combined with GLP Capital Partners, a US-based investment advisor, resulting in the formation of GCP as a pure-play global alternative asset manager.
See also: A brief recap of private equity
On March 3, GLP announced the completion of the previously announced sale of GCP International to Ares Management. The transaction, previously announced on Oct 8, 2024, comprises an upfront purchase price of US$3.7 billion ($4.9 billion) in a combination of cash and Ares Class A common shares, as well as an additional earn-out provision of up to US$1.5 billion contingent on the achievement of certain performance targets.
In 2017, when Hillhouse Investment bid for GLP, Warburg Pincus also bid for GLP, according to Joseph (Joe) Gagnon, co-head of Rava Partners. “Warburg Pincus was looking at the transaction and we are competing against Carl,” Gagnon said during a recent interview. Carl Ge, co-head of Rava Partners, is currently Gagnon’s partner in the firm.
“Carl was leading the transaction for Hillhouse and I was leading the transaction from the perspective of Warburg Pincus. GLP CEO Ming Mei connected the two of us,” Gagnon reveals.
See also: Democratising private equity
“That was the start of the relationship,” Gagnon adds. “Having seen Hillhouse succeed on what is probably still the largest deal ever in Asia, at least in the real estate context, I knew they could do big deals. We all came together in 2020,”
The privatisation of GLP for around $16 billion is still the largest privatisation of a real estate company.
“I saw that firsthand through the GLP investment, that it satisfied the demand for more efficient logistics. That has been the inspiration around New Economy real estate and infrastructure investment. With Joe’s partnership, this has been an exciting journey,” Ge says.
Since its establishment as a Singapore-based fund in 2020, Rava Partners has deployed over US$3 billion into 17 real estate companies spanning Japan, China, India, Australia, Singapore and Indonesia.
Rava Partners’ investments in real assets include JD Property, Eza Hill Properties, GDSI Holdings (now known as DayOne), Pragati, ATLATL, Asia Cold, BCI Group, Table Space, EcoBox, Cappella Educore, Samty Holdings and Good Host Spaces.
Agnostic to the interest rate cycle
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Between 2022 and 2023, the Federal Funds rate rose by 500 basis points (bps), stressing the real estate sector in the US and Europe. How did that affect business plans? “We’re not trying to arbitrage a rate of return over bonds. What we’re really trying to invest in is companies backed by world-class entrepreneurs, and with them, trying to go after some of the biggest growth opportunities in the entire world,” Gagnon says.
For his business model, the relevance of interest rates, despite some correlation, is less. “For what’s happening in the revolution around AI, data centres, and digital infrastructure, whether interest rates are 1% or 5% doesn’t really matter,” Gagnon says.
“What gets us excited is building the business. If we can build a business that could, over time, own 100 different schools or 100 different student housing complexes, that business can become, over time, much more valuable than just the underlying assets. I think we can offer a very attractive risk-risk reward to our investors,” Gagnon details.
If Gagnon sounds like Charles Kaye, the chairman of Warburg Pincus, that is because he acknowledges that Kaye was his one-time mentor. The investing period in Rava’s businesses for its capital partners is around five to eight years. “We’re not trying to guess the cycle and speculate on what’s going to happen to interest rates. We’re trying to get behind secular trends that can go on for a decade or two. There will be some relationship with interest rates, but we’re not trying to buy an office building and hope interest rates go down.”
Catching the cycle
Robert Ides, managing partner and founder of Arete, knows a thing or two about being a general partner (GP), creating a private fund, getting limited partners (LPs) to invest and exiting via a listed entity.
Since its inception in 2014, Arete has completed two successful real estate fund closings, both delivering above-average returns. Ides says the net returns are between 11% and 13% a year.
In December 2020, the then Cromwell European REIT (now known as Stoneweg European REIT) announced the proposed acquisition of 11 logistics properties in the Czech Republic and Slovakia for EUR113 million. Stoneweg EREIT raised EUR90 million in a placement and completed the acquisition in March 2021. This acquisition portfolio was Arete’s second real estate fund, Arete Invest Sub-Fund CEE II.
“[Stoneweg European REIT] bought some logistics properties. The portfolio was from us. One way to exit is by selling to another fund. It is important to know how to structure the product, the portfolio, and who it is for. If we don’t know for whom we’re structuring the portfolio, then nobody can buy it. There are different strategies. We have to understand the strategies, the allocations, the cross-asset class within the real estate and the geographical risk or exposure,” Ides explains.
In the past two years, real estate has undergone “serious pricing” adjustments because of the interest rate cycle. Now that rates are lower and property yields are higher, it makes sense to recycle the equity. “Reroute the equity into the higher yields,” Ides suggests.
After divesting the logistics portfolio to Stoneweg EREIT, Ides appears to have been biding his time. He has started a new private fund (vintage 2021). Arete Industrial Fund (Arete III) is a value-add fund that invests in logistics and light industrial real estate across 12 industrial parks in Europe. It has assets under management (AUM) of EUR310 million ($451 million) and aims to grow AUM to EUR600 million by 2028.
“In the last two years, we went into development because the development yield was still way better than the income-producing assets,” Ides says.
The equity for a development project needs to be allocated for a longer period. Because of the risks associated with development, the returns are likely to be 100 bps higher than other types of funds, including income-generating funds.
Ides was in Singapore in February to market the Arete III fund. “Surprisingly, we had the highest response in Asia. Chinese and Korean capital are still quite aggressive,” he says. For PE funds with industrial and warehousing space in Central Europe, many of the “players” are backed by Singaporean capital, he adds.
“We were in the market for 12 years. We built two portfolios and sold everything,” Ides says, as evidence that exits are possible despite the challenging environment. He adds that his net returns of 11% to 13% a year for his investors exclude the 30% net return achieved when the funds were sold.
“We have a track record of building a portfolio and exiting by selling. Exits are challenging. There is a slight disconnect between the perception of the value of the asset and the ability of capital to be deployed for that because real estate could decrease in value and somebody has to record a loss,” Ides points out. “A lot of the products are not so liquid, but liquidity is starting to increase slowly depending on the market,” he says, adding that divesting his portfolios was “kind of a long process”.
Exits remain an issue
According to Sidley Austin’s Charlie Wilson, co-managing partner, Singapore, head of M&A and private equity, and Daniel Lindsey, partner, Singapore, global finance, private equity, liquidity and exits are issues funds and GPs continue to grapple with.
How do you get liquidity to your LPs? LPs can exit via a continuation fund or a “secondary”, according to Wilson and Lindsey. “GPs can package exits in a way that allows LPs to get liquidity from different ways in both the private markets and the public markets,” says Wilson.
Ides says one way to get liquidity is to market the fund to private banks. “Our investors’ ticket size is a minimum of EUR3 million. We also work with distribution networks, which are banks. The banks have discretionary offerings. Their ticket sizes could be lower, but that’s discretionary on bankers. We ourselves do not want to deal directly with investors of less than EUR3 million. Between EUR3 million and EUR5 million means the investor knows what he’s talking about,” Ides explains.
For the multi-billion dollar GLP-GCP transaction, Ides says GLP was exiting multiple positions last year. “They were also divesting a group of assets in Europe. That’s normal. Everybody does it.”
As of June 30, 2024, GLP had approximately US$125 billion of AUM. An SGX filing says the GCP International business acquired by Ares encompasses approximately US$42 billion of this [US$125 billion] AUM, covering Japan, Europe, the US, Brazil and Vietnam.
“GLP retains a global footprint through its existing balance sheet assets and investment fund stakes in GCP International funds and will continue to strategically invest across key markets globally where it can achieve the best risk-adjusted returns, with a continued focus on its investment themes of logistics, digital infrastructure, and renewable energy. Greater China remains one of GLP’s highest conviction markets and the company sees attractive investment opportunities arising from current market dislocation,” the March 3 SGX filing states.
