Korea scientists’ fund in push for co-investments in overseas assets: report

  • 2017-04-27

Korea Scientists and Engineers Mutual-aid Association (SEMA) will commit about 20 billion won ($18 million) to a fund of Morgan Stanley Energy Partners (MSEP) for co-investment in a US water management firm, according to a local media report.

The $4.2 billion savings fund in South Korea has been pushing aggressively into co-investments in search of better yields, as the rush into overseas alternative investments by domestic institutional investors intensified competition for deals.

SEMA expects to earn about 20% of annual returns from the co-investment in XRI Blue, Yonhap Infomax said on April 25, citing a SEMA source.

In 2016, funds managed by MSEP, part of Morgan Stanley Investment Management, have taken a majority equity stake in XRI Blue which provides water management and pipeline transportation services to upstream oil and gas producers. SEMA participated in the deal through a fund of MSEP for an undisclosed sum.

This year, SEMA is to make the additional 20 billion won investment in XRI Blue as a co-investor.

“Domestic institutional investors are rushing into overseas investments, so it is important to secure decent overseas assets, rather than making blind investments,” Infomax quoted the unnamed SEMA source as saying. “We will expand co-investments with global management companies.”

SEMA invested 19.4 billion won in UK holiday resort group Center Parcs, alongside Canada-based Brookfield Property Partners which bought the resort operator in 2015 for an undisclosed sum. Brookfield offered the co-investment to SEMA, which is expected to deliver an annual return of 18%.

The scientists’ retirement fund also invested 26.2 billion won in Two California Plaza, a 52-story office building in downtown Los Angeles, in 2014, as a co-investor with CIM Group. The investment is expected to return around 12% per annum.

Its other co-investments include 29.3 billion won in a commercial facility in Boston, alongside CIM.

Robust performance in the corporate financing segment lifted SEMA’s investment return in 2016 to 6.06%, which is the highest among South Korean pension and savings funds last year.

Corporate financing accounts for 25% of its investment portfolio, while real estate takes the biggest share of 35%.

This year, it is aiming for a 4.73% return.

Private equity firms increasingly suggest co-investments to limited partners to finance big-size deals and spread investment risks. For limited partners, they can save fees paid to the fund manager and gain access to good investment targets, along with more control of their capital deployment.

Earlier this year, National Pension Service (NPS) agreed to buy a stake in US hospital staffing company, TeamHealth Holdings Inc., for about $300 million as a co-investor with Blackstone Group.

NPS also has decided to commit $100 million to a real estate fund of Boston-based Rockpoint Group for co-investment, on top of its capital commitment of $200 million to the fund.

<Edited by Yeonhee Kim>