Korea Investment Corporation (KIC) and Korea Post are not considering lowering targeted returns of their global real estate and infrastructure portfolios despite intense competition and falling expected returns, as they are seeking further diversification into sectors expected to benefit from new business and consumer trends, or set for a cyclical recovery.
KIC is making a thematic approach to target assets, in consideration of new market trends such as e-commerce growth and mobile market expansion which will lead to higher demand for logistics centers and broadband networks.
Korea Post is taking a close look at sectors such as vessels, set to make a cyclical recovery, after it shifted toward mezzanine facilities in real estate and infrastructure over the past year away from equity investment. But the move might not indicate a higher risk tolerance, according to its senior investment manager.
National Pension Service is seeking more co-investments, with the Brexit expected to provide an investment opportunity. But it did not elaborate further.
The following are remarks from their senior investment managers during a panel discussion of the ASK Real Estate & Infrastructure Summit in Seoul on Oct. 25.
▶Korea Investment Corporation (Chung Hyun Lee, director of real estate & infrastructure)
“Although investment returns are falling because of rising market uncertainties, we have not yet considered lowering targeted returns, or changing investment strategy. We are expanding our scope of investment assets and making a flexible approach to sectors or strategy in search of growth potential and new market trends, rather than lowering targeted returns.”
“We have invested primarily in developed countries, particularly OECD countries. As for emerging markets, they have more risk factors we have to consider than developed markets. We are studying how to take and handle such risks. To solve the problems, we have to cooperate with local GPs and partners.”
“In asset management, we are considering a business model for active investment, rather than being a passive financial investor. We want co-investment opportunities.”
“We invest $100 million to $300 million on average (in real estate and infrastructure). We have about 20 staff in charge of real estate and infrastructure investment. We are looking at both direct investment and indirect investment through funds.”
“We prefer core plus with growth potential to core.”
▶Korea Post (Sehoon Park, deputy director of insurance bureau’s alternative investment division):
“Even in the low rate environment, it is difficult for us to lower targeted returns. We are trying to solve the problem by diversifying investment targets, rather than increasing our risk scale.”
“We have raised the proportion of infrastructure assets and began investing in aircraft from a few years ago. We boosted research on sectors like vessels which are expected to make a cyclical recovery. Another change for us is we began mezzanine investment… on the prospect of US interest rate rises which will affect asset prices.”
“We had invested primarily in equities in real estate and infrastructure. Now asset valuations are higher, we are wondering whether they are at an appropriate level.”
“In the past, we had invested on a deal-by-deal basis. But we will increase investment in SMAs for steady investment. Our ticket size is $100 million to $200 million per deal. In the insurance bureau, four people are in charge of real asset investment.”
“As for infrastructure, we have been increasing investment in economically defensive and monopolistic infrastructure.”
“As a government institution, we will consider ESG factors and they will affect our decision-making.”
“Real estate investment has a long-term investment horizon, but many global GPs don’t’ have an office or staff based in Seoul. To make continuous cooperation and post-investment management, we suggest global GPs have staff and set up an office in South Korea. When selecting global real estate and infrastructure GPs, we will consider those factors and put more weight on them.”
(Note: In 2016, Korea Post started looking at post-sales management capabilities for capital allocation.)
“Our procedures for global real estate and infrastructure investment have been shortened sharply. It is important to approach a deal in partnership with GPs in trust-based relationships.”
▶National Pension Service (Richard Gwangbum Koh, head of global infrastructure):
“We have invested heavily in core and core plus assets in developed countries (in the past 12 months).”
“Selectively, on a case-by-case basis, we may take advantage of the Brexit for some assets which entail risks, though.”
“Emerging markets can be an alternative to development markets, returns from which have declined sharply. But we have to make every preparation for currency and policy risks, etc.”
“We are looking for good co-investment opportunities.”
By Daehun Kim
<Edited by Yeonhee Kim>