Canadian property fund manager targets Asian institutions

Walton Asset Management, part of Walton International, is aiming to expand the firm's business out of the individual investor market and into high-net worth and institutional investors. Mike Starvis, managing director of Walton Asset Management, describes how the company is planning to achieve this.

What does Walton International do?

Starvis: Up to now Walton's business has been purely land banking. The company has a 23-year history. We have six offices in Asia. About 50% of the whole group's business comes out of Asia and that has been effectively through the direct sales approach.

We buy huge parcels of land, currently just in Alberta, Canada, which has a particularly good economic story going for it. We then syndicate that land and sell individual parcels of typically a third or half an acre. Our typical investor, historically, has been one retail client that buys one parcel of land for around $20,000. The land goes through various levels of zoning up to the point, normally after four to eight years, where a developer comes along and wants to buy the land. Historically we have returned up to 20% per annum. This business has done very well and developed rapidly. In Asia we've not previously had business from professional or institutional investors.

How is Walton Asset Management's business different from Walton International?

We're focussed on the professional or institutional investor market, and not retail or individuals. We are really at the embryonic stage with Walton Asset Management; this new division of the group was incorporated earlier this year. We're aiming to create some fund structures that will be attractive to professional investors. Our first launch is a private placement fund made up of 60% real estate and 40% mortgage backed securities. It will give a 3.5% fixed US dollar income and a growth in excess of 10% at the end of the fund's five-year life. This will close at the end of August and we're looking to pull in up to $30 million on this first offering. Probably anything over $10 million would be good, given that it's a new venture.

What's the next product you'll be launching?

What we are looking to do is to come up with a fund structure that we can either get authorised or listed. We have explored both Hong Kong and Singapore. Singapore has a listing layer in between full authorisation and no authorisation, which means that a fund can be marketed through professional investors to high net worth clients. That would be an ideal scenario and it may be that our first full-blown product is more likely to be listed there than [in Hong Kong].

Will that product have the same structure as your private placement?

Hopefully. We think that sort of structure is attractive and the reaction of people we have introduced it to has been very good. Those have been institutions and selected intermediaries around the region. In the current climate many things are not doing well and real estate and mortgage-backed securities producing an income are fairly popular right now. We've had pension funds expressing an interest, as have family businesses that typically look for an income-producing vehicle. It may be however that, considering what the MAS in Singapore has done and what the SFC here in Hong Kong is doing, maybe a real-estate investment trust is more straightforward. So we have to do some work on that.

Are you talking to the regulators at the moment?

We are the early stages of talking to the MAS. However, having discussed this with a large number of people in Singapore the general opinion is that our current fund's structure could possibly be listed, although not fully authorised. That would allow us to go to a lot more financial advisors who would have high net worth clients. Hopefully Hong Kong will come up with a similar layer. We understand they have talked about it in the past.

Are you talking to asset consultants?

In terms of the high net worth client, family business, pension fund, and so on, there are key financial advisors in the region who have big clients. We've been in the industry long enough to know who they are. We have spoken to local financial advisors here in Hong Kong and elsewhere who we know have access to a few big clients. Their response has been positive but it would need to be a more public fund to take full advantage of this distribution channel.

Is all the feedback you've had been positive?

Pretty much so, although we have had comments from some institutional investors that if it had a separate rating or a guarantee they may look on it more favourably. That would be another way forward and we are exploring this with a couple of large private banks about coming up with a rated version of the product.