NPS, Korea Post back IGIS’s debut Korean value-add fund – Exclusive

IGIS Asset Management has reached a final close on the first ever discretionary commingled fund focused on value-add investments in South Korea.

Seoul-headquartered investment manager IGIS Asset Management’s 400 billion won ($360 million; 310 million) value-add fundraise symbolizes the growing willingness of Korean institutional investors to invest domestically via a commingled discretionary real estate vehicle.

Last week, IGIS closed the IGIS Strategic Fund I on its hard-cap, approximately one year after kick-starting marketing for the vehicle, PERE has learned from sources familiar with the fundraising. South Korea’s public pension fund, the National Pension Service of Korea, and postal giant Korea Post are two investors which committed equity to the fund, aside from IGIS’s own commitment.

One person involved in the process told PERE this is one of the few times Korean institutional investors have adopted a discretionary fund approach to investing in their home market. The majority of funds invested in South Korea have been single-asset vehicles or club deals created to invest in a pre-identified asset or portfolio of assets, the person explained.

The blind-pool commingled vehicle is IGIS Asset Management’s debut domestic fund for value-add investments. It is also the first ever value-add-focused fund raised from investors in South Korea.

According to Alfredo Lobo, partner at global advisory firm Hodes Weill, which advised IGIS on the fundraise, institutional investors are beginning to see the value-add space as an attractive domestic investment strategy, especially with growing competition for accessing core deals. Indeed, in the just second quarter of 2018, total office investment volumes in Seoul reached 3.8 trillion won, nearly triple the ten-year average for the same period, according to research by property services firm Savills. Transactions of core stabilized
assets showing around 90 percent occupancy were particularly prevalent in this period, resulting in higher unit prices for those sales, the Savills report estimated.

In Lobo’s view, while over half of office stock is 20 years old or older, much of it has yet to be upgraded because investors have preferred to acquire core assets. Such assets, with a value-add investing potential, are also typically priced at a 20-25 percent discount to the core assets in the market, creating ample buying opportunities.

IGIS will bet on these opportunities by investing around 75 percent of the fund’s capital into office assets in Seoul. The rest will be deployed in retail, mixed-use and logistics assets. The firm is targeting a 15 percent net internal rate of return from the fund’s investments, as PERE reported at the time of the fund launch.

In July 2017, NPS, the world’s third largest pension fund with 639 trillion won in assets under management, and IGIS also teamed up to acquire Signature Towers in Seoul from Shinhan BNP Paribas for $635 million. This 17-story twin tower complex became the first asset to be held by a core and core-plus fund launched by IGIS Asset Management. PERE understands IGIS has raised 220 billion won so far for the IGIS Core Platform Fund, with commitments from investors including NPS and the Ministry of Employment and Labor Reserve Fund.

IGIS currently has $20 billion in AUM.