US hedge fund TRG buys 50% of Arch Capital

Mar 8, 2011

The firm enters a share swap agreement with Ayala Corp and Ayala Land, with Arch and TRG now mulling the launch of a new Asian emerging markets property fund.

The Rohatyn Group (TRG) has acquired 50% of Hong Kong private equity firm Arch Capital Management in a share swap agreement to provide it with a foothold in the Asian emerging markets property sector.

The $3 billion US-based hedge fund would not disclose the value of the deal with Philippine conglomerate Ayala Corporation and subsidiary Ayala Land, which agreed to exchange their combined 50% stake in Arch for shares in TRG.

Ayala is an existing minority shareholder in the US firm, having invested in it several years ago.

Ayala will be able to consolidate its holdings through the share swap, effectively “moving up its shares from the ground floor to the first floor”, says Arch chairman Charles Cosgrove, who joins TRG as a partner in Singapore and relinquishes his role as head of Ayala’s international real estate operations.

TRG gains a stake in both the Hong Kong firm and its maiden property fund, the $330 million Arch Capital Asian Partners fund, which has projects in China, Macau, Singapore, Thailand and India.

Until now, TRG has had little exposure in Asian emerging markets real estate, says Cosgrove, adding that Arch and TRG are considering the launch of a new Asian emerging markets property fund, with a decision to be made by mid-year.

Ayala Corp and Ayala Land, which invested a total of $75 million in Arch Capital Asian Partners, have retained their investment in the fund and will continue to provide leads on potential investment opportunities and other market intelligence to Arch, says Leonard Wei, the firm’s chief investment officer.

Arch Capital was set up in 2006 as a joint venture between Ayala Corp, Ayala Land and Richard Yue, the former director of Asia investment at AIG Global Real Estate. Arch’s Asian Partners fund was launched the following year, having attracted investors including Mitsubishi Corporation, Dutch property investor Redevco and European pension funds.

Yue, whose 50% stake in Arch is unaffected by the deal, will continue to serve as the firm’s chief executive.