NPS building
National Pension Service (NPS), South Korea’s biggest institutional investor, has picked Koramco Asset Management Co. and Hana Alternative Asset Management Co. as managers of its real estate debt fund valued at 600 billion won ($436.1 million).
This is the first time in five years that the world’s third-largest pension fund with 1,150 trillion won worth of assets under management has committed to external real estate asset managers.
According to sources in the investment banking industry on Thursday, Koramco and Hana Alternative passed the final quality-based evaluation to win the NPS’ commercial real estate lending fund worth 600 billion won.
Kyobo AIM Asset Management Co., which was shortlisted alongside the two final winners, failed to join them.
This is part of the Korean public pension fund’s 1.35 trillion won worth of real estate investment project. The NPS will soon kick off the process of choosing three asset managers for a core platform fund valued at the remaining 750 billion won.
Earlier last month, NPS Chairman Kim Tae-hyun said in a keynote speech at the global investment conference ASK 2024 that the pension service will raise its exposure to real estate assets including data centers to take advantage of lower interest rates.
NPS Chairman Kim Tae-hyun gives a keynote speech at the global investment conference ASK 2024 on Oct. 16, 2024
In the medium to long term, the NPS will diversify its real estate portfolio into biotech research and health care centers, as well as rental housing and protech facilities, he added.
COMMERCIAL REAL ESTATE DEBT FUND
Koramco and Hana Alternative will operate funds that invest in Korean commercial real estate lending with the loan-to-value (LTV) ratio set at 70% and higher and a target annual return of 6.1%.
They are banned from investing in residential properties.
The fund is allowed to lend in riskier preferred equity and subordinated real estate debts as the yield on senior debts has recently dipped to the low 5% range. The LTV for preferred equity is set at up to 85%.
Investment in preferred equity and junior debts, however, cannot exceed 30% of the total fund.
In the case of project financing, only senior debt lending to already assessed and approved projects is allowed, whereas investing in bridge loans is banned.
FIRST IN FIVE YEARS
The NPS last committed real estate funds to external asset managers in 2019.
Koramco building
Its core platform fund is expected to draw more interest from asset managers as it is an equity investment fund.
It will invest not only traditional real estate assets like office buildings and hotels but also the so-called new economy sector with at least 30% of the fund.
The new economy refers to new, high-growth industries driven by cutting-edge technologies.
Koramco Asset Management is an alternative asset investment company of Koramco REITs Management and Trust Co., Korea’s first real estate finance company. Its assets under management (AUM) stand at 13.35 trillion won as of December 2023.
It has already opened a liaison office next to the NPS headquarters building in Jeonju, North Jeolla Province, to deepen collaboration with Korea’s biggest institutional investor in real estate investment.
Hana Alternative Asset Management boasting an AUM of $8.56 billion as of November 2024 is an alternative investment arm of Hana Financial Group, Korea’s third-largest financial holding company.
By Byeong-Hwa Ryu
hwahwa@hankyung.com
Sookyung Seo edited this article.
