South Korea’s National Pension Service (NPS), Public Officials Benefit Association (POBA) and Hyundai Marine & Fire Insurance Co. Ltd. are likely to commit $380 million to a blind-pool real estate fund which private equity firm Rockpoint Group is launching to make core-plus and value-added investments in US real estate.
The fund targets office, apartment and retail buildings for expected annual returns of 9% to 10%, similar to the first such fund employing the same strategies of Rockpoint closed in 2014.
NPS has decided to put $200 million into the fund initially, and commit an additional $100 million when a specific investment target is found to make co-investment, according to investment banking sources on April 25.
POBA will invest $50 million in the fund, upon final approval of its investment review committee.
For Hyundai Marine, South Korea’s No.2 non-life insurer by assets, its commitment of $30 million to the fund will be the first investment made by a domestic insurer in an equity-based, blind-pool real estate fund run by a global fund house.
The three South Korean investors will invest through a fund launched by South Korea’s IGIS Asset Management Co. Ltd.
It is unknown how much Rockpoint, a Boston-based real estate private equity firm, is aiming to raise for the fund.
The capital commitments come as Korean asset managers are finding it more challenging to sell down their equity interests in overseas real estate assets, because rising valuations and brokering fees trim expected returns from cross-border property investments.
“Whenever we go through a domestic securities firm, a broker and an asset manager, the fees we have to pay are increasing, and there is a high possibility that communication may be distorted,” a South Korean savings fund source told the Korean Investors.
As Korean pension and retirement funds are diversifying into value-added and opportunistic investments for better yields, they may increasingly opt for global fund houses with track records.
“The investment environment is deteriorating because of interest rate rises and money flows into the US real estate. But if we pick a capable asset manager with strong track records, we will be able to outperform the market,” said an alternative investment official of a South Korean insurance company.
Rockpoint, established in 2003, is known to have around $7 billion in assets under management. The internal rate of return of its funds averaged 14% per annum.
By Daehun Kim and JiHoon Lee
<Edited by Yeonhee Kim>