[ASK 2019 SUMMIT Panel Talks] NPS, KIC seek smaller GPs for niche infrastructure

  • 2019-10-26

The National Pension Service (NPS) and the Korea Investment Corporation (KIC) are seeking small and medium-sized management companies to chase smaller deals and new strategies for infrastructure, in the face of mounting competition for core and core plus assets which make up the majority of their portfolios.

“KIC is considering boosting co-investment with sector-specialized GPs, while focusing on prime infrastructure with downside protection,” its Chairman and CEO Heenam Choi in a keynote speech for the ASK 2019 Real Estate & Infrastructure Summit in Seoul on Oct. 23.

He pointed out 5G communications infrastructure, transportation and storage facilities of shale oil and gas, renewable energy facilities and sectors in relation to the climate change as new investment targets.

The following are key remarks by senior officials of both NPS and KIC during a penal discussion of the Summit hosted by the Korea Economic Daily.

NPS (Hyeyoung Yoon, head of global infrastructure):

“This year our global infrastructure investment was focused on the midstream (market) in the US and in Europe, we chased plus alpha-generating sectors through co-investment, while maintaining the proportion of core plus assets.”

“In order not to lower our return targets and not to increase risk exposure, we need to diversify into value-add and other strategies. We will make effort to find mid-market management companies.”

“In the deepening market competition, we want GPs to stick to their disciplines in executing investment. I want them not only to make asset allocation at attractive prices, but also make good on their words about the sector and investment with professionalism.”

“Currently, our global infrastructure portfolio comes to 20 trillion won ($17 billion). In the medium to long term, we will maintain the proportion of core and core plus at 70-80% and selectively add value-add and opportunistic assets for a balanced portfolio.”

“(This year) we put focus on digital infrastructure and new and renewable energy sectors.”

“Indirect and direct investment account for 60% and 40%, respectively. We will increase co-investment to speed up investment execution and save GP fees.”

“The benchmark for our global infrastructure investment team is the OECD average CPI plus 500 basis points, which are higher than other investment assets.”

“Our minimum ticket size is $100 million. For sweet spots, we invest $200 million to $300 million. For attractive assets, we are flexible enough to invest more than $500 million.”

KIC (Seo Jin Choi, senior director):

“This year we signed contracts with new management companies to increase core plus investment in Europe and ramped up co-investment.”

“With market competition heating up for large-sized, prime assets, we will try to find small and medium-sized management companies to build partnerships, and carry out small-scale co-investment through SMAs and secondaries investment.”

“It would be good for GPs to tell us why their strategy is differentiated from other managers’ rather than talking about market trends, and give the specific examples of their strategy creating a value and how their strategy makes sense in such a market environment.”

“For next year, we are considering a thematic approach to further balance our portfolio. We plan to build a portfolio on communications infrastructure because of growing data traffic.”

“We are considering debt strategy for new and renewable energy sector.”

“We have been doing both direct and indirect investment since 2015 when we began co-investment. Direct and indirect investment are split into 7:3. Our AUM (for infrastructure) is $5 billion and ticket size is $100 million in general.

“At the beginning of this year, our infrastructure team was completely separated from the real estate team. We have eight staff, including those in New York and London.”

By Chaeyeon Kim

Why29@hankyung.com

<Edited by Yeonhee Kim>