The National Pension Service of Korea is planning to make up to $1.2 billion in fresh commitments to traditional private equity real estate funds in 2011 as it seeks to deploy higher risk capital.
Following more than a year of awarding lower risk separate account mandates to firms including London-based Rockspring Property Investment Managers, Prudential Financials’ Pramerica Real Estate Investors and Cleveland-based Townsend Group, the $270 billion sovereign wealth fund plans to look further up the risk curve for its next series of capital outlays.
Speaking to PERE, senior portfolio manager Andie Kang said the core markets on which NPS had focused during the tail end of 2009 and throughout 2010 were becoming saturated with too much capital chasing too little real estate. As a result, cap rates had been pushed to unattractive levels.
Consequently, NPS, which invests the pension contributions of approximately 18 million South Korean people, equal to about 40 percent of the country, is keen to back more traditional private equity real estate funds.
Kang said most of the commitments would be made during the first quarter of the year and that US-focused managers would likely receive up to 50 percent of the capital, as NPS currently is overweight in Europe, where many of its investments have come over the past 18 months. Stand out investments in the region included €570 million for the Sony Center in Berlin in May and £772 million for HSBC Tower in London’s Canary Wharf in November 2009.
While NPS would commit its capital to value added and opportunistic strategies, typical of the private equity real estate sector, Kang said it would not back those managers who were over reliant on financial engineering such as some of the platforms managed by the investment banks.
The strategy shift by NPS comes after many of the world’s largest LPs, particularly sovereign wealth funds, have switched from making blind pool, commingled fund commitments to taking more direct routes to their investments via channels like separate accounts and joint ventures. At the beginning of the year, the Abu Dhabi Investment Authority said it would grow the headcount of its real estate department in an effort to take more control of its capital commitments and, as such, would unlikely commit more capital to third-party pooled funds. The Qatar Investment Authority is said to have taken a similar approach, while Norway’s Norges Bank and Australia’s Future Fund have each made headlines this year for their direct investments.
You can read more about NPS and its flight back up the risk curve in this month’s issue of PERE.