A property investment arm of the Samsung Group will raise 300 billion won ($270 million) from South Korean insurance companies and pension funds in a real estate mezzanine fund that focuses on commercial buildings in major U.S. cities, according to investment banking sources on Sept. 13.
The won-denominated fund will attract 30 billion~50 billion won from seven to eight domestic companies, including Samsung Life and Samsung Fire & Marine Insurance Co. Ltd., and will be managed by Samsung SRA Asset Management, a wholly-owned unit of Samsung Life Insurance Co. Ltd.
The fund will invest in mezzanine or subordinated loans secured by properties for a period of 12 years. Its target return is greater than 5% a year.
Real estate investment funds with over 10-year horizon have been grabbing the attention of South Korean insurers which need to narrow a duration gap between assets and liabilities. With the adoption in 2020 of new international insurance accounting standards, IFRS4 Phase II, insurers will be required to mark their debt to market. That will lead to an extended duration of liabilities.
The local currency mezzanine fund of Samsung will also help domestic insurance firms get around the current restrictions on their foreign currency-denominated investments which should not exceed 30% of total assets. Because the Samsung fund is denominated in the won, it is free of the regulations, while meeting demand for overseas alternative investments.
“The limits on overseas investments to 30% don’t reflect the reality of domestic insurance companies which have to expand overseas investments, so revisions are underway,” an insurance company source told the Korea Economic Daily. “Once the regulations are eased, domestic insurance companies will gain momentum in their efforts to expand overseas investment.”
Last year Samsung SRA Asset raised 500 billion won in Samsung Global Core Office Private Equity Real Estate Trust, which Samsung Life, Samsung Fire and Samsung Securities participated in.
By ZiHoon Lee
<Edited by Yeonhee Kim>