KIC to expand real estate footprint in Europe

Korea’s sovereign wealth fund plans to invest in niche sectors and new geographies in the region as it aims to boost its overall alternatives allocation.

Korea Investment Corporation is looking to diversify its real estate portfolio in Europe by entering niche sectors and new geographies in the region.

“We’ve always been focused mostly on Western European countries. Now we will start to look at Eastern Europe as well,” said London-based senior director Gianlorenzo Paolella, speaking on day one of the PERE Asia Summit 2021.

Over the past five years, Korea’s sovereign wealth fund has focused its real estate investment strategy in Europe on offices in key gateway cities and logistics. While KIC will continue to focus on those two real estate strategies in Europe, “we will have increasing attention to the niche sectors of real estate, like residential, healthcare and data centers,” he pointed out.

KIC plans to increase its allocation to alternative investments to 25 percent by 2027 from 16 percent currently. In July, the sovereign wealth fund’s new chief executive, Seoungho Jin, announced a plan for KIC to become one of the top 10 sovereign wealth funds in the world, with alternative asset expansion being one of four strategic goals.

“The amount we invest in real estate will be consistent over the next years, and this means our focus will expand to include the niche sectors and other geographies,” Paolella said.

Europe is considered one of the key markets for KIC, he added. “What attracts us is the low volatility and the downside protection that Europe can give, which is different from the US, where you’re probably seeking higher returns but you have less downside protection.

“So, the reason why Europe is a key market is driven by these features in the market and this includes the stability that some sectors can give. When you talk about office, we see in the key gateway cities limited development activities and rising rents. So, the yields are low, but you are in a safe environment.”

Given KIC’s status as a global institutional investor, “there are other opportunities that you can see when you compare the regions,” Paolella said. “You can easily translate trends from the US and Australia to Europe.” After building up a large exposure to logistics in the US, KIC became an early mover in the logistics sector in Europe in 2016. “We can do the same when we can look at asset classes like data centers.”

Regarding other property sectors, KIC expects to be more cautious in hotels and “really selective” in retail, however. “We will only look most likely at high-street retail and we will keep an eye on new trends, especially coming from the UK, so the second life of some of the retail space could be something interesting to look at in the next years,” he said.

KIC currently has 4.2 percent, or $8.44 billion, of its overall $200 billion portfolio allocated to real estate, according to PERE data.