Leading Korean asset owners, including National Pension Service (NPS), Korea Investment Corporation (KIC) and Public Officials Benefit Association (Poba), are buildling momentum with co-investment deals as they seek to boost alternative asset exposure over the new few years.
Poba earlier this month selected US-based GCM Grosvenor as its $300 million separate account manager as well as co-investment partner in infrastructure in Europe, North America and Australia.
The process is ongoing and Poba is likely to finalise the deal in the next few months.
Also in July, the Korean pension fund committed about €150 million ($177 million) to Kyobo AXA Investment Managers, a Korean joint venture between AXA IM and Kyobo Life Insurance.
Some investment will go to Kadans Science Partner, a Netherlands-based life sciences real estate developer owned by Axa Investment Managers, as Poba eyes niche investments in Europe, according to Jang Dong-hun, the $15 billion pension fund’s chief investment officer.
Poba has a stable partnership with Axa IM.
“By utilising their strong franchising, especially in the European market, we'd like to work together with them to source the best deals available in Europe in each asset class, Jang told AsianInvestor. “This year is a starting point for establishing co-investment platforms for each asset class. We’ve already done private equity in the first half, and the next target is infrastructure,” he said.
Poba is continuing to add exposure to alternative assets, which now stand at 58% of total assets under managment (AUM). The fund is currently preferring infrastructure and real estate investments in logistic and data centers, life science buildings, and social-related projects in Europe and North America.
“We don’t have enough capacity internally to make quick investment decisions in each asset class, so we prefer to do it through co-investment,” Jang said.
Moreover, it reduces management fees, and allows Poba to rely on its partners' expertise when it comes to overseas due diligence, Jang said.
However, he stressed that co-investment won’t replace separately managed accounts (SMAs), as the latter give Poba more control over the investment process to meet their targets and preferences.
Since 2019, Poba has teamed up with Danish pension fund PFA and formed a joint venture with California State Teachers’ Retirement System to invest in overseas properties.
JOIN HANDS IN STRENGTH
Similarly, KIC and NPS in late May committed a combined $600 million to US-based GLP Capital Partners’ North America-focused logistics fund that is targeting $2 billion at its final close, local media reported.
They will each commit $300 million for the blind pool fund. This is the first time that the two largest state-run funds in Korea have teamed up for co-investment.
While both funds declined to comment on the deal or their future co-investment plans, KIC’s new CEO Jin Seoung-ho told a press conference in Seoul on July 2, that the $195.7 billion sovereign wealth fund is open to joint investments and different kinds of cooperation with NPS, the world’s third-largest pension fund with W884 trillion ($768 billion) of assets.
KIC has an ambitious target to raise its alternatives allocation from the current 16.1% to 21% by 2024, and to more than 25% by 2027. NPS, meanwhile, intends to raise its alternative asset exposure from 10.5% to 13.2% by the end of this year, and to around 15% by 2025.
Babloo Sarin, asset owner segment head for Asia Pacific with State Street, said they see a continuously growing trend in co-investment among their client base globally.
In Asia, the approach is becoming increasingly popular among large pension funds and sovereign wealth funds, including those in Australia, Korea, Singapore and Japan, as well as some big funds in the Middle East.
Sarin told AsianInvestor that these funds were rapidly growing in size and were continuing to build up their investment skills.
State Street on July 12 renewed its contract with NPS on back-office and middle-office services for NPS’s global equity and alternatives portfolios, which have W222 trillion ($193 billion) and W49 trillion (43 billion) assets under management respectively. State Street declined to comment on specific investment strategies of its clients.
Co-investment with other asset owners helps increase the investment size and capacity of a fund while spreading some risks, Sarin noted. It also helps a fund to utilise the local expertise of their partners in private assets, he added.
“You see a lot of pension funds being much more active in the investment process as they try to drive outcomes for their clients,” Sarin said, noting that a lot of pension funds had a very clear message in their mandate, which is to deliver the best possible outcomes for their members.
With more co-investment, they can achieve greater efficiencies in investments, which in return contribute to better investment outcomes under an interactive ecosystem, he said.