South Korea’s National Pension Service (NPS) has decided to commit €250 million to Macquarie European Infrastructure Fund 5 (MEIF5) that is aiming to raise €2.5 billion, while the pension fund’s internal investment review committee rejected a proposed joint purchase of a 60% stake in France’s Nice airport last month, citing a high price.
NPS, with $450 billion in assets under management, is expecting a 7~9% annual return from the new infrastructure fund of Macquarie, in what would be its first investment in Europe’s infrastructure assets after the Brexit vote. Other South Korean institutions, including Military Mutual Aid Association, Korea Scientists and Engineers Mutual-aid Association and Yellow Umbrella Mutual Aid are set to commit a total of 300 billion won (€250 million) to MEIF5, or the other half of 600 billion won that the Macquarie fund is going to collect from South Korean institutional investors.
By and large, however, NPS has become more selective in European alternative investments since the Brexit referendum, on the views that property markets and corporate value in Europe remain pricey, according to NPS sources on August 19.
One of the NPS sources told the Korea Economic Daily that its investment review committee had turned down the planned joint purchase of a 60% stake in Nice airport, France’s biggest regional airport, due to the high price. The 60% stake, up for sale as part of privatization plans, was reportedly worth at least €900 million. It is not known who was supposed to join hands with the NPS for the joint investment plan.
Five offers for the French airport, or Nice Cote d’Azur, had been submitted by July 4, including those by Italy’s Atlantia in cooperation with EDF invest, and by a consortium of Vinci, state bank Caisse des Depots et Consignations and Credit Agricole’s insurance arm Predica, according to Reuters’ report in July. But the sale procedure has been delayed following a truck attack in Nice on July 14, 2016 which killed more than 80 people.
NPS CEO URGES CAUTION
NPS had earned benchmark-beating, double-digit returns on overseas infrastructure assets over the past few years, which was another reason for the investment decision in MEIF5. The Macquarie fund will be operated for 12 years, including a four-year period of investment execution.
Europe represented 17.2% of the NPS’ overseas alternative asset portfolio at the end of last year, amounting to 5.6 trillion won ($5 billion). North Americas made up 39.0%, worth 12.6 trillion won, while Australia and Asia took a share of 4.0% and 12.3%, respectively.
Recently, NPS Chairman and CEO Hyung Pyo Moon has called on key in-house fund managers to take a cautious approach to investment, one of the NPS sources said.
An NPS’ in-house fund managers said that its experienced senior managers are avoiding making direct investment in Europe now. “Instead, they are putting more focus on the U.S., Australia and Asia,” he said, without elaborating further.
NPS is considering investing $200 million in a projected $1.5 billion real estate fund that Cerberus Capital Management is launching to buy distressed assets in Europe, other sources had said last week.
Meanwhile, an KIC source said that the sovereign wealth fund does not see the Brexit itself as a negative lead, adding that: “There will be investment opportunities arising from information asymmetry.”
By Dongwook Jwa
<Edited by Yeonhee Kim>