ASIA NEWS: Flying from core

For the real estate division of South Korea’s National Pension Service, 2010 predominantly has been about committing capital to core strategies via separate account mandates.

London-based Rockspring Property Investment Managers, Prudential Financial’s real estate business Pramerica Real Estate Investors and Cleveland, Ohio-based Townsend Group are three managers to have benefitted, collecting a combined total of $1.1 billion in equity to invest.

The year, however, will tell a different story for the $270 billion sovereign wealth fund, which invests the pension contributions of 18 million people (approximately 40 percent of the country’s population), as it seeks to travel back up the risk spectrum into the value-added and opportunistic spheres.

According to senior portfolio manager Andie Kang, NPS is to make between seven and eight $150 million commitments to blind pool, commingled real estate funds, the very sector to come under heavy scrutiny from NPS’ sovereign peers and other large institutional investors. “Most institutional investors are still looking at core accounts, but we have decided to select funds,” he told PERE. “Core is becoming too expensive in many of the world’s gateway cities when you consider the property market fundamentals.”

Kang’s words echo closely those of market commentators, who have suggested that many core markets have become overcrowded with big-ticket investors like NPS chasing limited assets. According to a recent INREV study, for example, core products absorbed 87 percent of all capital raised last year for Europe.

Overweight in European real estate itself, Kang said: “Our main targets will be North and South America, as well as Asia. In all, I expect more than 50 percent of new allocations to be made to the US market. Of that, I expect between 40 percent and 50 percent to go to debt strategies.” He added that multifamily investments also are a favoured sector.

The news of the forthcoming fund commitments, to be made in the first quarter of 2011, will be cheered by traditional private equity real estate fund managers, many of which have been scrutinised since the global economic downturn for their poor performance and expensive fee structures.

However, Kang said NPS would not commit capital to those firms that deployed significant amounts of financial engineering, such as some of the platforms managed by investment banks. “I like real opportunity funds, not those run by the financial engineers but by those who understand real estate and know how to add value,” he added.

When asked whether he was happy with the blind pool fund model, Kang replied: “Yes, why not. As long as they are managed by good managers who provide decent fund terms, we are fine with blind pools.” He added that NPS was keen to benefit from incentives that come with being an anchor investor in a vehicle.