Sparx Wins Sovereign Fund Money to Start Japan Property Business

Sparx Group Co., a Japanese asset manager, won money from a sovereign wealth investment company overseas to start a property fund focused on residential assets, Chief Executive Officer Shuhei Abe said.

Sparx Asia Capital Management Ltd. will be responsible for the five-year fund, which will have maximum capacity of 40 billion yen ($507 million) and will start in August or September, Abe said in a telephone interview from Tokyo. The company will team up with a Japanese real estate investment trust in running the fund and will start with about 10 billion yen, he said, declining to name the state fund or the REIT.

“The Japanese property market has become a very attractive investment,” said Abe. “We’re hoping that this business will become one of the core businesses for Sparx in the long run.”

Sparx is widening its offerings beyond its focus from equity-related products to return to profit after it widened its full-year loss as performance and asset management fees dropped amid market declines. Sparx posted a net loss of 4.54 billion yen for last fiscal year, compared with a 3.7 billion yen loss a year earlier, even after the company cut salaries and relocated to less expensive offices in Tokyo.

The company plans to eventually expand its offerings in the property market including logistics and hotels to meet rising demand from overseas institutional investors including sovereign wealth funds in the Middle East, Abe said.

Rising Demand

Sparx is entering the property business as real estate prices signal a recovery. Companies including Goldman Sachs Group Inc. also plan to start a private real estate investment trust to meet increasing demand from Japanese pension funds.

The number of condominiums offered for sale in Tokyo and surrounding areas in April rose the most in 18 years as the nation’s property industry recovered from a record earthquake and tsunami in March 2011. The number of new homes put on the market two months ago surged 82 percent from a year earlier, the Real Estate Economic Research Institute said last month.

Abe said last month his company plans to raise 50 billion yen for new funds including those that will invest in Japanese real estate and renewable energy.

Sparx last year tied up with Kachikaihatsu Co., a Tokyo-based property firm 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 disaster. It also started an Asian long-short equity fund last fiscal year using $10 million of the company’s own cash as seed capital.

Shares of Sparx added 1.3 percent to 5,460 yen at the close of trading on the Jasdaq exchange in Tokyo. The stock has gained 1.9 percent this year, compared with the 2.2 percent advance by the Jasdaq index.

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