ASIA NEWS: Korea down with oppo funds

NPS expects opportunity funds to play their part as it seeks to grow its property portfolio by $1.5 billion to $2 billion each year. PERE Magazine March 2012 issue.

Opportunity funds are firmly on the menu for Korea’s pre-eminent pension fund, the National Pension Service (NPS) of Korea.

According to PERE sources, the $288 billion state fund was slated to commit $300 million to The Blackstone Group’s seventh opportunity fund, Blackstone Real Estate Partners VII, last month. It also was expected to follow that investment with two more commitments to opportunity funds before September and was putting together a beauty parade for an investment consultant, which would be mandated to select those funds.

The news follows a decision by NPS in 2010 to back higher-return strategies following a period of time concentrating on core investments. That higher-return strategy is part of a wider effort by the pension fund to increase its exposure to alternative assets, including private equity and infrastructure, to 10 percent by 2015. The ensuing plan for real estate featured making commitments up to $1.2 billion in approximately eight commingled funds.

With the value-added component of the strategy evidently executed…the opportunistic part is next on the slate

NPS currently has approximately $9 billion of real estate assets under management. Of that $9 billion, $6 billion is invested outside of Korea, with the remaining $3 billion invested in the country. The state fund is understood to want to increase the international component of its portfolio by $1.5 billion to $2 billion per year for the foreseeable future.

With the value-added component of the strategy evidently executed – $150 million each was committed to the 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 – the opportunistic part is next on the slate.

As PERE reported in late 2010, all the commitments were expected to have been made by the end of 2011. That mission was understandably not quite completed given how active NPS’ small real estate team was in direct property deals across the investment spectrum during the course of the year.

According to sources, the pension invested heavily in prime assets, albeit at discounted premiums. In one such example, NPS is understood to have invested $300 million via a co-investment vehicle in Blackstone’s $9.4 billion purchase of the US assets of Sydney-based Centro Properties Group, a transaction born from Centro needing to sell assets to address its more than $18 billion debt obligation.

Other deals were executed opportunistically, afforded by various impending debt maturities. For example, in June, it acquired a 49 percent stake in the Helmsley Building at 230 Park Avenue in New York after previous owner, Goldman Sachs, relinquished its holding.

High-yielding debt strategies and debut investments in new markets, such as Russia and Brazil, also occurred in 2011 and should continue into 2012 as NPS continues to diversify its core-heavy portfolio. Of its $6 billion in global real estate assets, PERE understands that about 85 percent is core. With the state fund wanting to increase its net income yield of about 6 percent, expect more higher-return forays to make headlines in 2012.