Korea Teachers’ Credit Union, the Korean public pension, is aiming to increase its net overseas real estate assets under management to around KRW 3.8 trillion ($3.5 billion; €2.9 billion) in 2018, an increase of KRW 600 billion from its current AUM.
Speaking at PERE’s annual real estate conference in Seoul, Sung Seog Kang, chief investment officer of KTCU, told delegates that the public pension is planning further investments as well as some exits from its overseas portfolio spread globally in equity and debt deals.
KTCU is targeting 6 percent investment returns from its overseas real estate portfolio next year, according to Kang (as interpreted by the translator). While he did not specify the investor’s return targets from infrastructure investments, PERE understands that KTCU has generated approximately 7 percent from its overseas real estate and infrastructure investments combined in 2017.
Kang acknowledged the continuing increase in property valuations in global markets since 2015 and said that this, together with a competitive project financing environment, has reduced the expected investment returns.
KTCU, which was managing KRW 29 trillion in assets as of June last year, began its overseas investment program in 2012 when it acquired office assets in the US. Eventually the public pension plan diversified into other investment strategies, including mezzanine and other debt deals. In January this year, KTCU established its third partnership with TH Real Estate through a $1 billion joint venture partnership to invest in commercial real estate loans in the US. According to PERE data, the investor, in 2016, also committed to real estate debt funds managed by Blackstone and Brookfield.
Kang further added that KTCU has also invested in hotel assets via club deals this year. At a time when growth rates are stagnating globally, Kang said that investors need to have management capability to create more value out of assets to generate returns. As such, the investor is looking to make investments with upside potential, including value-add fund investments globally.
In terms of geographic focus, Kang said KTCU is looking to diversify beyond New York into other urbanized areas where real estate prices haven’t yet returned to the pre-GFC levels, and gateway cities in Europe.
When asked about the manager selection for overseas investments, Kang brought attention to the low number of Korean asset management companies that have overseas operations.
“Compared to the economic size of South Korea, there are not too many managers working overseas. These managers can go out and globalize by acquiring foreign managers. But I don’t know why they are not doing this,” he commented.