KIC raises property concerns as it adds to alternatives

The Korean sovereign wealth fund is keen to ramp up its alternative investments but is still reserved about real estate investment opportunities.
KIC raises property concerns as it adds to alternatives

Difficulty in sourcing suitable real estate deals is keeping the Korean Investment Corporation (KIC) from expanding within the asset class, even though the sovereign wealth fund is keen to substantially increase its allocation to alternatives in general.

Investors know where the opportunities are within the real estate sector (logistics and data centres), but finding the right deals is the hardest part of the equation, Daniel Oh, director of real estate group at KIC, told AsianInvestor.

“The key in this industry is that the answer is already there in terms of picking the right sector. But how to source [deals] in those key sectors is a whole lot different... It is about trying to source those kinds of key quality assets,” he said.

Chief investment officer David Park said in a webinar hosted by AsianInvestor in January that KIC would increase its allocation to infrastructure assets and cut investments in real estate, citing structural changes in a post-Covid world.

The sovereign wealth fund invested 15.3% of its $183.1 billion portfolio into alternative assets at the end of 2020 and plans to raise this to 20% by 2024 and to at least 25% by 2027. Its alternative investment strategy involves holdings in real estate, private debt, private equity (PE) and venture capital (VC), infrastructure, and hedge funds.

Daniel Oh

Real estate requires more capital and a longer investment period. Unless investors have a very high conviction on certain assets, it will be quite challenging to substantially increase the allocation, Oh said.

He said that they have faced difficulty in not only finding good opportunities in the most sought-after sectors, but also assets that were hit hard by the pandemic, such as hotels.

“It's a hard and very challenging decision to take some aggressive risks on hotels. If you ask me what my decision for the hotel sector going forward is, [I would say] it depends on the deal and not the whole sector. Within the sector, there might be high-value deals with quite attractive valuations,” Oh said.

“So there's no clear cut [answer] from our side. We are cautious but we are aware of the opportunity because of the valuations,” he added.

Jeong Seungki, manager at DGB Life Asset Management, echoed this sentiment, telling AsianInvestor that people’s lifestyles have changed as a result of Covid-19. For example, some people are still working at home, so investors cannot use previous standards to work out the valuation on real estate assets.

In addition, asset prices are going up despite the pandemic. So it would be more difficult to find the asset that investors want, Jeong said.


Real estate investment has slowed amid the pandemic due to the challenges of on-site due diligence and weak performance from existing overseas real estate investments, especially in offices, commercial buildings, hotels and retail space.

Richard Tan

That said, Richard Tan, alternatives investment director for Asia at Mercer, said that there are still some interesting opportunities.

Investors seeking yield generation are emphasising capital allocations towards “core” or “core-plus” strategies within developed markets including North America, selective European regions and key developed cities across the Asia Pacific region, Tan told AsianInvestor.

“Core” strategies refer to class A real estate located in high-quality locations with the most credit-worthy tenants, while “core-plus” strategies refer to real estate with similar but lower quality traits.

Valuations for these real estate types have been experiencing upward pressure for some time. However, their potential for generating a relatively stable income stream in a low-interest rate environment has resulted in a willingness to pay among some acquirers seeking good quality assets, Tan said.

Some Korean asset owners are “re-upping” on existing mandates, Elizabeth Oh, head of investment advisory for Korea at Mercer, told AsianInvestor.

They are also expanding their investment scope into areas which have benefited from the pandemic, such as multi-family focused properties, logistics and data centres. There is also renewed interest in other sectors such as office space in pace with economic recovery expectations and the global vaccination rollout, she said.

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