Russell to boost Asia property fund exposure

By Daryl Loo

SINGAPORE (Reuters) - U.S.-based Russell Investments, which manages over $211 billion in assets, wants to boost its exposure to Asian real estate as it sees growing markets in China and India withstanding a global downturn.

The company, which raises money from institutions such as pension funds and invests it with other fund managers, said it expects to more than double its investments in Asia properties over the next three years, from about $300 million currently.

"Our clients tell us they want to be in Asia property, and we go where our clients want to go," said Martin Lamb, newly appointed Asia Pacific head of property for Russell, the funds and indices unit of Northwestern Mutual Life Insurance.

"Regardless of the downturn in the U.S. and Europe, there is a strong domestic need particularly in India and China that continues to fuel demand for housing and retail," said Lamb, who is Russell's first property chief to be based within the region.

"There's no question that it's going to be a bumpy road if the United States plunges into a severe recession, but whereas before there was very little domestic demand in China and India, a lot of that demand can now be picked up internally," he said.

An increasing number of financial and property firms have set up funds to invest in Asia property in the past year, seeking better returns elsewhere as property markets in the U.S. and Europe face a steep downturn.

Recent fund launches include those by the property investment units of Jones Lang LaSalle (JLL.N) and Prudential (PRU.L), and by Singapore developers such as CapitaLand (CATL.SI) and Keppel Land (KLAN.SI).

DECADE OF ASIA

Lamb said about $8 billion of Russell's funds are in global real estate currently, of which $6 billion are in listed property stocks, and just $2 billion in unlisted real estate, but expects this amount to jump as clients seek to diversify their holdings.

"Pension funds in the west until recently had virtually zero exposure to Asia -- excluding perhaps Japan -- in part because there were so few vehicles in which to invest," said Lamb, who previously headed the Shanghai office of Gerrity International, a developer of malls in China.

"Asia has been a challenge, but it's been building up over time, and I think the next 10 years will be the decade of investing in Asia."

Russell's top institutional clients include the Bill & Melinda Gates Foundation, Prudential Assurance, and Barclays.

The company closed its first Asia property-focused fund late last year, raising $230 million from Australia-based pension funds, and is in the process of setting up more of such funds of similar size to invest in Asia, he said.

These new property funds will each typically select eight to 12 funds to make up its "fund-of-funds", said Lamb, who declined to name the funds Russell has invested.

He said most of these funds will look to invest in emerging Asian markets, mainly in China and India, but also including smaller countries such as Vietnam and Indonesia, and will mainly look at developing projects rather than buy existing properties.

"In emerging Asia you probably don't want to buy too much existing property, because the construction standards, the quality, or even the design is probably antiquated by the time they top it off," Lamb said.