Sparx to Start Japan Property Fund on Sovereign-Fund Mandate

Sparx Group Co. (8739), a Japanese asset management company, will start a fund that will invest in the nation’s residential properties after receiving money from a sovereign wealth fund in the Middle East.

Sparx will start the fund with AD Investment Management Co., which manages a real estate investment trust, on Sept. 28 with initial capital of about 9 billion yen ($116 million), said Sparx Chief Executive Officer Shuhei Abe. The fund, which will last for five years, has a maximum capacity of 40 billion yen and will invest in six apartment developments in Tokyo and Nagoya, he said.

The company, whose assets have dropped more than 77 percent since a peak in 2006, is widening offerings beyond equity- related products as Abe tries to bring his firm back to profitability and capitalize on what it expects will be a recovery in Japan’s property market. Land prices dropped at a slower pace for a third year as low interest rates and tax incentives supported housing demand, a government report earlier this month showed.

“Japan’s property market is starting to show signs of a turnaround, yet only a limited number of investors are actually starting to invest in the market,” Abe said yesterday in an interview in Tokyo. “That means, we can offer decent returns based on high-quality assets by entering the market now.”

Of the 9 billion yen initial capital, 2.6 billion yen will come from a sovereign wealth fund, which Abe declined to identify, and AD Investment. The rest will be debt, he said. Management fees on the fund are higher than the average earned for other products, he said, declining to elaborate.

Government Mandate

The Tokyo-based company said earlier this month it will build a mega-solar power plant in southern Japan after winning a contract from the Tokyo Metropolitan Government in June to start an infrastructure fund that will invest in the nation’s renewable energy industry.

Sparx last year tied up with Kachikaihatsu Co. (3010), a Tokyo- based property company, which operates the Best Western hotel brand in Japan, for its first hotel fund that was aimed at providing lodging for relief workers and volunteers following the March 2011 earthquake and tsunami.

The company posted a net loss of 4.54 billion yen in the 12 months ended March 31, compared with a 3.7 billion yen loss a year earlier, even after it cut employee pay and relocated to less expensive offices in Tokyo. Assets under management stood at 455 billion yen in August compared with an August 2006 peak of 2 trillion yen.

“We hope that we can build on these funds so that we can eventually earn management fees and return to profitability again,” Abe said.

Shares of Sparx declined 3.2 percent to 4,985 yen at the close of trading on the Jasdaq exchange in Tokyo yesterday. The stock has fallen 7 percent this year, compared with the 6.8 percent advance by the Jasdaq index.

To contact the reporters on this story: Tomoko Yamazaki in Singapore at tyamazaki@bloomberg.net; Komaki Ito in Tokyo at kito@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net.

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.