ASIA NEWS: Korea’s need for speed

Direct real estate investing takes centre stage as Korea’s national pension fund seeks rapid growth in alternative assets. PERE magazine October 2009

The National Pension Service of Korea is looking to spend as much as $3 billion on global real estate before the year is out.

In order to execute this strategy, the world’s fifth largest pension fund – with current reserves of approximately $200 billion – has prioritised methods such as separate account investing in a bid to not only give it more control over what it buys, but also the means with which to do it quickly.

In July, Kim Hee-Seok, head of NPS’ global investment team, told Reuters the pension fund would increase its exposure to global real estate as part of a wider strategy to expand its allocation to alternative assets.

NPS wants to have 6.4 percent of total assets under management in alternatives by 2010, up from 3 percent (as of 30 October 2008), according to PERE’s sister database PERE Connect. The pension fund aims to grow to $440 billion by the end of 2012.

NPS is eyeing London, New York, Tokyo and Sydney and has been identifying joint venture partners in each of these cities to secure deals. For the London leg of its buying spree, NPS has chosen Rockspring Property Investment Managers.

It is easier for them to identify managers and access them more quickly than to underwrite hundreds of indirect vehicles.

NPS was unavailable for comment by press time however Kathryn Dixon, partner in charge of marketing, sales and client services at Rockspring, told PERE: “There were discussions made at a very senior level [at NPS] to increase their allocation to global real estate as opposed to other asset classes. Their feeling was [in order] to get the amount they wanted in the market quickly, the best way was to go direct.

“It is easier for them to identify managers and access them more quickly than to underwrite hundreds of indirect vehicles,” she said.

Rockspring was invited by Korea’s NPS to manage its investment programme in London, where the pension fund is attracted by the market’s relative liquidity to the rest of Europe and by its transparent lease structures, among other things. NPS has previously worked with Rockspring, having invested in its €274 million open-ended commingled fund, Rockspring TransEuropean Fund IV, which closed in December 2007.

Rockspring’s brief is to locate investments of more than £150 million and to invest with or without debt, “enabling each acquisition to be agreed and concluded speedily”, Dixon added.

NPS relayed its strategy to Rockspring last November. Dixon said: “The $3 billion related to what ideally they would like to get this year. My understanding is the strategy will continue next year, although we don’t have any numbers on that yet.”

NPS has not, publicly at least, taken the separate account route in the three other cities on its hitlist. The pension fund, which was asked by the Korean government to curb its spending on alternative assets in 2008 to focus on its national currency, has also recently been active in Tokyo.

There, NPS co-invested alongside Washington DC-based The Carlyle Group in the $362 million acquisition of the KDX Toyosu Grandsquare office building from Japanese seller Kenedix. NPS took a 49 percent stake in the fully-leased, 667,368-square-foot building.