[ASK 2016 SUMMIT] KIC seeks club deals via GPs; to quicken response to deal proposal

Korea Investment Corporation (KIC), the $96 billion sovereign wealth fund of South Korea, will continue to secure deals through specialized partners and chase joint investments with other institutional investors as a long-term investor, said the KIC’s managing director and head of real estate and infrastructure, James Kim.



In a panel discussion of the ASK 2016 Summit – Real Estate & Infrastructure hosted by the Korea Economic Daily in Seoul on Oct 20, Kim also said that KIC will speed up its response to investment proposals made by GPs so as to snatch up decent assets in the competitive market, adding that the fund is taking a close look at investment opportunities related to logistics and e-commerce.

The following is the translation of Kim’s remarks made in response to the moderator’s questions.

Moderator (Andrew Shin, Head of Investment Services, Korea, Willis Towers Watson): Let me first ask about real estate. Most of global institutional investors have increased the proportion of real estate in alternative investments. On one hand, real estate investment seems to be replacing fixed-income portfolio in the sustained low interest rate environment. But on the other hand, the market seems to be overheating with prices going up and interest rates falling. Please tell us your institutions’ views in that respect; how your expectations have changed about real estate in the past one to two years; and which investment strategy you are taking.

Kim: “Our market views hardly differ from the National Pension Service’s. But each institution is in a different situation. Our asset allocation was focused on core-plus strategy in the past two years. Even if interest rates rise, we think core asset values will remain stable. An interest rate hike may have an impact (on asset values), but it will unlikely cause such problems as the collapse of bubbles we had seen during the financial crisis.

We are making long-term investments. Our benchmarks are based on absolute rate of return, so there is no change to the role of real estate investments. We let our investment partners adjust the timing of investment and redemption in consideration of investment size and the like. Because we are a long-term investor, we will take advantage of our nature as patient capital when looking for an investment opportunity for core assets.”

Moderator: There are many external uncertainties, including Brexit and the upcoming U.S. presidential election. While the U.S. Fed is moving to tighten liquidity, the Bank of Japan and European Central Bank have been injecting liquidity. Please tell us how such external factors affect your real estate investment decisions, and how they are reflected.

Kim: “From the point of a long-term investor, it is difficult to modify strategy whenever a market event happens. But on events which increase market volatility and set an overall direction such as Brexit, interest rates and elections, we would like to respond promptly through funds which we have already invested in.

We are closely looking at investment opportunities related to logistics and e-commerce, and executing investments there. We will continue to secure deals through specialized partners, rather than doing them on a deal-by-deal basis. Regarding logistics, we are interested in making such a platform and will continue to invest there.”

Moderator: Is there anything unique to your institutions, when it comes to real estate and infrastructure investments? Also, would you have any particular strategy for next year and requests you would like to make to GPs?

Kim: “There are growing needs for decent assets in the market. Our institution, specializing in overseas investments, is waging a borderless war. It will be even more difficult to grab handsome returns these days. When there is a good deal on offer, the competitive edge lies in how quickly we can secure the good asset, while following our internal decision-making process simultaneously. We are thinking about how quickly we can provide a feedback to GPs in a more efficient manner. We are making efforts to build in-house investment platforms.

As KIC has increased direct investments recently, there has been misunderstanding about us. We do not make direct investment only. It is so-called barbell approach. For risky and opportunistic investments, we go through partners. In the case of investments close to core, or relatively more sensitive to external factors, we are trying to exercise more control over them.

We cannot do them by ourselves. We hope GPs make club deals with other pension funds and foreign institutions and share them with us. We will respond to them quickly to create a win-win environment.”