Hyundai Investments Co. Ltd. has raised a total of €180 million ($222 million) in commitments to invest in 3i European Operational Projects Fund from seven South Korean institutional investors in their hunt for long-term yields ahead of the 2021 adoption of new accounting standards.
3i Investments plc, part of British investment firm 3i Group, recently held its final close for the blind-pool fund at €450 million with the commitments from South Korea, according to sources with knowledge of the matter on April 13.
It began the fundraising in 2016 to invest in operational public private partnership (PPP) projects across Europe.
Hyundai Investments, wholly owned by Hyundai Marine & Fire Insurance Co. Ltd., launched a domestic fund vehicle with an investment period of up to 25 years for the PPP fund.
The seven Korean investors, composed of unidentified domestic insurance firms and a retirement savings fund, will receive dividends in the lower end of the 7% range during the first 10 years and afterwards begin to get back their investment principal, along with dividends.
Considering the additional interest payments they are expected to receive from cross-currency swap trade, their returns are projected to climb to the mid-8% range per annum.
“At the request from South Korean investors, they added the conditions of putting 70% or more of their capital in countries with credit ratings of AA- or above,” said a source of one of insurance companies participating in the fund.
“Lower risk coefficients will give insurance companies more breathing space for asset management,” he added.
The level of loss reserves for government-guaranteed infrastructure in countries of AA- or above is 6%, or half the level for conventional equity investment.
3i Investments also has promised to offer co-investment opportunities to the South Korean investors when they make large-scale asset purchases.
Insurance companies in South Korea have been issuing hybrid securities such as perpetual bonds, or subordinated notes, to beef up their capital bases ahead of the IFRS17 introduction in 2021 which extend the durations of liabilities.
The PPP fund will invest in projects such as hospitals, correction facilities, public service offices, student housing, gymnasiums and archives in Europe, for which the governments guarantee to compensate investors for any monetary losses.
It focuses on France, the Benelux, Germany, Italy and Iberia and sub-sectors such as social infrastructure and transportation, according to a 3i Group statement released in April 2017.
3i Investments was launched after its parent group acquired the European infrastructure management business of Barclays Bank in 2013. It manages €3.6 billion of AUM.
Hyundai Investments set up a global alternative investment team at the end of 2015. With the latest commitments, it has committed a total of 1.5 trillion won to overseas alternative assets on behalf of domestic investors.
In December 2017, Hyundai Investments saw US real estate debts and Europe’s PPPs performing better than other alternative asset classes in 2018, as the continental Europe is expanding PPP projects for balanced budgets.
By Daehun Kim
<Edited by Yeonhee Kim>