South Korea’s public pension fund Korean Teachers’ Credit Union has included credit as one of its major overseas real estate strategies for the next 12 months, PERE has learned.
For the new capital invested in overseas real estate in the next 12 months, the investor plans to allocate around 50 percent in real estate debt, 40 percent in value-add and 10 percent in secondaries. In terms of sectors, KTCU will continue to focus on the industrial sector as well as exploring opportunities in residential and student housing. According to PERE’s database, real estate represents 30.35 percent of its KRW43.28 trillion ($33.2 billion; €30.6 billion) assets under management.
It is understood that the pension fund resumed its alternative investment activities in April this year after a 10-month pause. The investor halted its alternative investments in June 2022 due to interest rate hikes, an overallocation to alternatives because of the denominator effect and a short-term liquidity issue in its portfolio. In the three months since it restarted its alternative investments, KTCU has already committed to a global real estate fund that invests in both equity and credit and a US real estate credit fund.
“We have rebalanced our portfolio and the internal liquidity issue has been solved. As an institutional investor, we want to invest regularly across the timeline,” said Rok Kim, senior manager, real estate investment team at the Korean Teachers’ Credit Union. Kim also believed it is a good time to invest in real estate credit because the base rate is a lot higher than it has been in the past few years. For the first half of 2022, the investor mainly invested in real estate equity.
“We have been investing in credit for many years and we are very accustomed to investing in the space. But the allocation into credit and equity is dependent on the cycle,” Kim said. Some of the credit funds to which the investor has committed capital include GreenOak UK Secured Lending Fund III, Blackstone Real Estate Debt Strategies III and Brookfield Real Estate Finance Fund V.
Apart from real estate credit, KTCU also sees potential opportunities to invest in overseas real estate secondaries via one or two funds later this year or early next year. Currently, the firm has little exposure in real estate secondaries as there has been a “significant gap” between the valuations and market prices for properties in recent years.
“For real estate secondaries, we will need to wait a bit longer until we make an investment. There is a [large amount of debt] that will be coming to maturity at the end of the year and next year, we believe the valuation would go down and that’s when we can look into it. But we are preparing ourselves for the opportunities,” he explained.
Going forward, the investor plans to invest through funds and co-invest alongside managers rather than making direct investments for real estate.
“As a foreign investor, we find it challenging to navigate the overseas real estate market effectively and efficiently. Real estate is a highly localized investment, making it difficult to succeed in an unfamiliar market, especially when the market conditions are unfavorable,” Kim explained.
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