It is time to shift focus toward non-US markets after years of stellar performance of US assets driven by the robust world’s No. 1 economy, said Principal Asset Management’s chief executive, adding that digital real estate remains attractive amid the ongoing artificial intelligence boom.
“All the attention has been on the US economy and how the US economy was continuing to do. And I do think there is more attention now being paid to the non-US economy,” Principal Asset Management President and CEO Kamal Bhatia said in an interview with The Korea Economic Daily last week during his visit to Seoul.
“I think there is generally a re-rating of growth across the globe, but it is spotty.”
The CEO recommended that investors carefully examine the growth trend of different parts of the world and sectors to unlock opportunities because growth rates differ country by country, sector by sector or asset by asset.
“There is a lot more engagement in the global economy today for a variety of reasons. I think that creates more interesting opportunities for us,” said Bhatia.
The head of the Des Moines, Iowa-headquartered asset manager considers Asia as one of the promising non-US markets this year as assets in the region have not moved in tandem with US equities, which have become quite expensive over the past few years.
“I think parts of Asia are expected to do well, moving forward, particularly North Asia and components of Southeast Asia, and that’s where we see a lot of momentum happening on the client front as well,” said Bhatia.
He noted that India is, however, overvalued after last year’s rally, while China is the market that should be approached meticulously and differently by sector and by company, with a thumbs up to the country’s technology sector.
Japan remains a vibrant market but it also requires investors to be selective in their bets by sector, the CEO said.
RESILIENT US ECONOMY
But Principal shrugs off the potential of a recession in the US economy, albeit growing concerns that the world’s largest economy would stumble this year due to the Donald Trump administration’s fluid and higher-than-expected tariffs on imports, which could inflate consumer prices and constrain spending in the country.
“If there is a recession, which we don’t believe, …, it’ll be extremely short-lived,” said Bhatia. “Inflation is not very high…. With the noise in the marketplace today, you could have some slowing growth, but still (the US economy is) expected to grow at 2% or 3%, which is quite robust for a very large economy like the US.”
Principal projects two to three more policy rate cuts by the US Federal Reserve through this year, keeping the Fed’s rate at 4% or 3.70%, the lowest.
US TARIFFS ON GLOBAL CAPITAL FLOW AND SUPPLY CHAINS
Since Trump took office early this year, the global financial market has been on rocky rollercoaster rides due to the new US administration’s erratic and aggressive tariff policy threats.
Principal advises investors to step back and think of the big picture at a macro level and then at a micro level.
“So at a macro level, I do think there is some re-rating of how we think about capital flows, particularly supply chains, being rearranged around the world, and that clearly will have winners and losers as we think about it,” said Bhatia.
“And so I think that remains to be seen how it plays out. I think you have to take it day by day, but there’s not a clear direction of travel right now on that.”
The US government will announce blanket tariffs on imports from all countries to the world’s No. 1 economy on April 2.
KOREA NEEDS EDGE ON TOP OF VALUATION
US tariffs are expected to take a toll on export-reliant South Korea differently.
But considering the dimensions of its economy and industries, Asia’s fourth-largest economy could benefit from the tariffs over a period of time, thanks to the country’s capability to produce value-added products such as semiconductors, said Bhatia.
Korea is an “interesting market” in terms of its industry structure and valuation, he added.
The country’s securities are traded at discounted rates compared to some of its peers in Asia, partly due to a lack of a system supporting minority shareholders’ rights and a high concentration on big names versus small companies, said Bhatia.
“There’s a big, big gap in those rights, and so that has to be unlocked for global investors to fully participate in buying more companies (in Korea),” said Bhatia.
He also urged Korea to dispel “a lot of fiscal noise and a lot of political noise” at home, which are keeping investors away from the Korean market despite its attractive valuation.
South Korea has been in a leadership vacuum since the country’s President Yoon Suk Yeol was impeached by the National Assembly over his ill-fated martial law declaration in early December, causing political, social and economic instability in the country.
The country armed with all the industries desired by the global economy also needs to “create its edge” to win investors over neighboring economies – China, Japan and Taiwan.
“I think Korea has to evolve over a period of time where it differentiates itself against capital that wants to go to China, versus capital that wants to go to Japan, and in some cases, with your chip sector, against Taiwan,” said Bhatia.
KOREA WITH MAJOR INSTITUTIONAL INVESTORS
With its extensive investment expertise in the US and Europe, Principal is striving to penetrate deeper into Asian markets, including Korea.
The US asset management firm opened its Seoul office in 2022. Since then, the Korean operation has added multiple Korean institutional clients and will continue to invite more on board through this year.
In February, the asset manager closed a $3.64 billion data center fund, of which a significant portion was raised from three Korean institutional investors, said Bhatia.
“It’s our largest real estate fund we have ever raised in the company’s history,” he said.
The fund mainly invests in hyperscale data center projects across the US.
Principal Asset Management’s Korean office is actively exploring diverse offerings beyond real estate assets for Korean investors, such as mid-market direct lending, said John Kim, managing director at Principal Global Investors’ Korean office, who accompanied Bhatia during the interview.
“We will expand from real estate to corporate direct lending and also to infrastructure debt, so that we can cover all kinds of private asset classes and provide a wide variety of strategies to create clients,” said Kim.
Principal Asset Management plans to obtain a local asset management license in Korea this year.
TRABLAZER IN DIGITAL INVESTMENT
Founded in 1994, Principal Asset Management is an investment management and international pension arm of Principal Financial Group, which was incepted in 1879 and is headquartered in Des Moines, Iowa.
With clients in over 80 markets across the globe, Principal Asset Management manages $559.1 billion in assets as of December 2024, specializing in a large private market business.
Its offerings cover investments in fixed income, equity and real estate assets. Its dedicated real estate team investing across all segments, both debt and equity, is a global top 10 real estate investor with an AUM of over $100 billion.
Recently, it has added infrastructure investment with three special focuses on digital infrastructure, decarbonization or energy infrastructure and social infrastructure.
The company has a long and strong track record in digital real estate asset investments.
“We have been a pioneer in what I call digital real estate. So, particularly, data centers, in which we’ve had a lot of client interest, even in the Asia region … as AI transforms the real estate space,” said Bhatia.
The US investment firm, which has invested mainly in digital real estate assets in the US and Europe, plans to foray into digital real estate markets in other parts of the world, especially Asia.
BALANCE BETWEEN PRIVATE AND PUBLIC MARKETS
Principal has recently witnessed the reallocation of investor portfolios, with a focus on private markets, especially the increasing interest in global credit and private credit, particularly in the lower middle market.
“We continue to see more interest in the private market side. On the public market side, I would say regional equities have been a place where we are seeing a lot of interest, particularly in Asia,” said Bhatia.
“Investors, as I said, have started to pay attention, both on a relative value basis, across what I would call the mid-cap companies in Asia.”
Outside of Asia, Principal is witnessing growing investment in global credit.
To unlock opportunities, the US asset management firm is seeking to lure more capital from institutions in Asia Pacific, said the Principal Asset Management CEO.
Bhatia was promoted to president and CEO of Principal Asset Management in January 2024.
Previously, he served as senior executive managing director and global head of investments for the company. Before joining Principal, Bhatia was CEO at OC Private Capital, a joint venture between OppenheimerFunds and The Carlyle Group, where he focused on private credit investing.
By Sookyung Seo
skseo@hankyung.com
Jennifer Nicholson-Breen edited this article.
