NPS to back three opportunity funds, starting with Blackstone

The $288 billion National Pension Service of Korea is poised to commit $300m to Blackstone’s latest opportunity fund as part of a strategy to increase its exposure to higher return investments. A beauty parade to select two more opportunity funds is expected to follow.

The National Pension Service of Korea, South Korea’s largest state fund, is to make three opportunity fund commitments starting with a $300 million commitment to the latest opportunity fund of New York powerhouse The Blackstone Group.

PERE can reveal that NPS, which had $288 billion of assets under management according to its 2010 figures, is expected to sign documents for the Blackstone commitment by the end of the week.

A beauty parade for investment consultants is slated to happen shortly after for a mandate to select another two opportunity funds. Those commitments should be concluded by September, it is understood. The size of these commitments is dependent on a number of factors related to the funds and their managers.

The commitments by NPS are part of its global real estate strategy, led by global real estate head Andie Kang, to further diversify the state fund’s real estate portfolio from being predominantly comprised of core assets. Of the $6 billion of assets that constitute NPS’ global property portfolio, PERE understands that approximately 85 percent is core and that the portfolio currently produces a net annual income of about 6 percent, which would be increased with a greater exposure to higher return strategies.

NPS said at the end of 2010 it would commit up to $1.2 billion to value-added and opportunistic funds and has already committed $650 million to value added and real estate debt strategies. Within that,
$150 million each was committed to US funds of Invesco Real Estate and Cornerstone Real Estate Advisors, $150 million to Colony Capital’s distressed credit fund and $200 million to a Brazil-focused fund of Tishman Speyer.

In addition to the opportunistic outlays, NPS has also made further commitments to other debt strategies, including between $150 million and $200 million to a high-yielding debt fund of Pramerca Real Estate Investors, the property arm of US financial company Prudential Financial. Further commitments to funds in this part of the investment spectrum are expected also.

The backing of Blackstone’s latest opportunity fund, which is expected to haul at least as much as BREP VI, which closed on $10.9 billion in February 2007, further cements belief that its capital raising efforts may well result in the biggest ever private equity real estate fund. Indeed, PERE also understands that the hard cap of BREP VII is $13 billion which would reflect the largest. To date, the fund has closed on more than $6 billion of equity.

Blackstone reported in an earnings call, earlier this month, it had invested about $7.6 billion of investors’ capital in real estate  in 2011. Indeed, NPS is understood to have made its commitment to BREP VII after taking part in Blackstone’s largest property transaction last year, the $9.4 billion acquisition of the US assets of Australia’s Centro Properties Group. NPS is understood to have invested $300 million into that deal via a co-investment.

NPS declined to comment when approached. Blackstone did not respond before press time. Catch the next issue of PERE to read more analysis of NPS’ global real estate investing strategy.