U.S. private equity giant Warburg Pincus has set up a China distressed real estate joint venture, in one of its largest investments in the sector to date. Warburg Pincus and Shanghai-headquartered distressed asset manager Wensheng Asset Management will invest up to $600 million into the joint venture, Wensheng Special Situations Asset Management Co, and plan to bring its assets under management to $5 billion over the next five years. The new venture comes as a regulatory campaign to reduce financial bubbles in the property sector has created opportunities for distressed debt investors, and as China eases access for foreign investors to its bad debt market. Foreign distressed debt specialists including BlackRock Group Inc, Brookfield Asset Management and CarVal Investors have been active in the Chinese non-performing asset market, mainly the distressed real estate sector, for years.
The new joint venture will focus on acquiring single real estate projects, starting with “seed assets” located in Shanghai, the eastern coastal province of Zhejiang and Hainan province in southern China. In light of the on-going financial reform in China and the continued regulatory development, the real estate special situations sector is entering an accelerated growth trajectory. Warburg Pincus is one of the largest private equity firms investing in real estate in Asia. It holds more than $22 billion of assets under management in Southeast Asia and China.