PAG raises $4 billion in Asia-focused real estate fund

By Kane Wu

HONG KONG (Reuters) - Asian Investment firm PAG on Thursday announced its 10th Asia-focused opportunistic real estate fund closed at $4 billion, as the firm expands its regional foray on property and debt investments in developed Asia.

The fund exceeded the firm's target of $3.5 billion, PAG said in a statement, making it the largest real estate fundraising in the region in the past 12 months according to Preqin data.

The new fund will focus primarily on Japan with a minimum allocation of 60%, said Phi Le, partner and co-head of real assets at PAG. Historically, the firm's opportunistic real estate funds have ended up deploying about 70% to 75% to the world's fourth largest economy, he said.

"In this particular vintage, everyone liked Japan because it was the only country that didn't raise rates like the rest of the world did. Corporate governance reform as well as sufficient liquidity in Japan all contributed to its appeal," Singapore-based Le said.

Japan in January raised its short-term policy rate from 0.25% to 0.5%, a level the country has not seen in 17 years.

The central bank, after ending eight years of negative rates in March 2024, will continue to raise interest rates if underlying inflation accelerates towards its 2% target as projected, a senior official told Reuters last week.

However, even with the increases, the cost of borrowing in Japan remains far below other countries, including the U.S. where the benchmark overnight rate is currently in the 4.25%-4.50% range.

The weak yen, and a shift of funds out of China where a property crisis and geopolitical concerns have put a chill on investment, have led to a surge in real estate investments in Japan, experts have said.

Financial sponsors invested a total of $5.4 billion in Japan real estate in 2024, more than three times the amount in 2023 and a record high, Dealogic data showed.

"I would say Japan is pretty neutral in terms of the tension between US and China. So, it's better insulated that way," Le said.

PAG will deploy about 25% to 30% of the new fund to data centre investments in Japan, Le said, adding that the fund would also look at offices, multifamily housing, logistics and distressed debt.

The 10th fund will also invest in Australia, South Korea and potentially New Zealand, Le said.

PAG's real asset business, headquartered in Tokyo, was founded in 1997 as Secured Capital Japan by Jon-Paul Toppino, before he joined forces with buyout veteran Weijian Shan and private credit investor Chris Gradel to launch PAG in 2010.

It has invested $45 billion since inception with more than $13 billion assets under management currently.

The firm's opportunistic real estate funds, which have managed more than 7,400 properties, look for discounted deals through hard assets and distressed debt, its statement said.

Investors in the 10th fund are primarily pension and sovereign funds from North America, Europe, the Middle East and Asia Pacific, PAG said.

PAG real assets have not invested in China since 2019, Le said, as "performance hasn't really been there due to supply-demand issues."

The firm raised $2.75 billion for its last opportunistic real estate fund in 2020.