NPS adopts IPD index for global real estate portfolio

South Korea's $320 billion state pension fund has engaged London-based real estate intelligence provider IPD for a specifically tailored investment performance index for its non-Korean property investments.

The National Pension Service of Korea (NPS) has decided to improve the way it measures the performance of its international real estate investments by benchmarking them against an Investment Property Databank (IPD) index.

South Korea’s largest pension fund becomes the latest sovereign wealth group to engage the London-based real estate intelligence provider, according to Kevin Swaddle, IPD’s managing director for Asia. While declining to divulge specific groups, he said IPD is working with a number of sovereign wealth organisations on similar items.

NPS approved a bespoke index – a weighted composite device based on the seven overseas countries in which it has made investments – after a year of evaluation culminating with a green light from a committee of South Korea's Ministry of Health and Welfare. The committee had been tasked with establishing new benchmarks for the Alternative Investment division, which accounted for $24 billion NPS’ $320 billion of assets under management in 2011.

NPS has a target of increasing its alternative investments assets under management to 10 percent of its total assets by 2015, and, as the division grows, the need for it to review its benchmarking processes had become more pressing, IPD said in an announcement.

In the announcement, IPD said NPS’s Research Institute commenced a formal study to establish best benchmarks for real estate as well as private equity and infrastructure. As part of the research, the pension fund took advice from consultancy firm Towers Watson comparing benchmarking processes of other major pension funds and sovereign investors. The Institute’s research also included a conference hosted by NPS where the state fund discussed with contemporaries in the real estate investing world the challenges of benchmarking.

The bespoke benchmark, which received its final approvals in May, comprises a composite of markets in Australia, France, Germany, Japan, Spain, the UK and the US – countries where NPS has built up an overseas real estate portfolio thought to be in the region of $6 billion as of March. Swaddle said it would be “logical” for NPS to adopt IPD benchmarking for any additional markets the fund makes investments. “The use of IPD as a benchmark is a long term thing (for NPS) so it would be logical for them to continue to reflect that structure,” he said.

Swaddle said IPD’s relationship with NPS is now more than five years old and, earlier on, he said NPS was helpful in providing data from its domestic portfolio – understood to be have been valued at approximately $3 billion – as IPD built up a Korean index.

While IPD is well known for its core real estate coverage, Swaddle said NPS would be able to use IPD’s index for its higher risk/return investments also. “I believe that is their intention,” he said.