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Korean investors to switch JVs for clubs and funds

Cheer for managers of private real estate funds as Korean investors responsible for $500 billion of assets indicate in an ANREV-led survey they will increasingly seek investments in overseas closed-ended funds and investment clubs at the expense of joint ventures.


Private real estate fund managers have received a boost after one of the world’s most sought after pools of institutional capital indicated in a survey it was looking more favourably on commingled investment vehicles.

According to a joint survey by the Asian Association for Investors in Non-listed Real Estate Vehicles (ANREV), consulting firm Mercer and research house Real Capital Analytics, Korean institutional investors could invest up to $25 billion in overseas real estate over the next two years and are set to better embrace closed-ended funds and investment clubs. This will come at the expense of joint ventures, the survey found.

“Having already accumulated some overseas investment experience it does seem Korean LPs expect to increasingly turn to closed ended non-listed vehicles as a means of allocation to real estate over the next two years,” ANREV said in an announcement on survey’s findings.

ANREV said: “The discernible trend is that the proportion of allocation via joint venture will be cut back in favour of club deals and closed end funds.”

ANREV's executive director Jeremy Stewardson explained to PERE that many Korean institutional investors have limited resources and would therefore be increasingly willing to chose third-party managers for their overseas investments. He said: “We are finding increased interest returning to funds, as the second tier of investors from Korea grow their allocations and may not have the scale or resources to handle JVs.”

The study saw 22 Korean institutional investors polled and it garnered responses from 14 investors representative of $500 billion of assets.

The majority of the investors surveyed said they held allocations to real estate of 10 percent or more, some had allocations as high as 15 percent. Investors were expected to increase their allocations to international property on average by between 2 percent and 5 percent over the coming two years, meaning an additional $10 billion to $25 billion could find its way to real estate investment managers shortly.

The survey found that many Korean investors have to date taken something of a cautious approach to property overseas. Currency risk and a lack of international markets intelligence have been of most concern. As such, respondents placed an emphasis on investment partner selection and alignment of interest as well as selecting investments with decent professionals standards and corporate governance.

Nonetheless, many Korean investors are ambitious to expand their investment into overseas real estate as the scale of opportunity within Korea is limited.

Tellingly, Korean investors to date have not regarded returns generated from international real estate as “compelling” when compared with returns generated from within Korean. However, the majority of investors were willing to accept lower property yields to gain exposure to established markets.

Another standout takeaway from the survey was how willing Korean investors are to invest outside of what ANREV labelled “Alpha” markets. In addition to investing in London, Paris and New York, investors were also investing in markets including Milan and Philadelphia “which do not usually attract global investors.