[Interview] NPS eyes equity stakes in foreign infrastructure firms: CIO
Oct 24, 2016 (Gmt+09:00)
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South Korea’s National Pension Service (NPS) will chase equity stakes in foreign companies running power, harbor and road projects, as it is seeking to ramp up exposure to offshore infrastructure and diversify investment channels, said its chief investment officer.
With the price in power facilities in developed economies having surged on strong demand from pension funds, an equity investment could be an option to gain exposure to the assets held by an infrastructure company at a moderate price. Further, an equity holding in an infrastructure firm will allow the NPS to include the company’s infrastructure facilities in its investment portfolios, Myoun-Wook Kang, NPS’ CIO told the Korea Economic Daily.
“We will diversify channels of offshore infrastructure investments,” he said in an interview on the sidelines of 2016 ASK Global Real Estate & Infrastructure Summit hosted by the newspaper in Seoul on Oct. 20.
“Infrastructure companies pay high dividends, so we can expect steady dividend incomes as much as those from real asset investments.”
The world’s third-largest pension scheme will also diversify into non-traditional infrastructure such as airplanes and vessels. Earlier this year, it invested $300 million in acquiring a stake in a liquefied natural gas carrier leased by BP, British multinational oil & gas company.
Additionally, the fund is making a final assessment of its plan to commit about $200 million to a blind-pool airplane fund. “Travel demand is rising from China. The lessees are national carriers with high credit ratings, so the risk-adjusted return of the airplane fund is relatively high,” Kang added.
As of end-June, NPS committed 11.7 trillion won ($10.3 billion) to infrastructure, of which 6.5 trillion won has been executed.
NPS’ global alternative investment head, Sang-Hyun Yoo, said in a panel discussion of the summit that the pension fund was pacing itself in offshore real estate purchases after making heavy investments in the past few years, and was setting its eyes on infrastructure in Europe and Australia.
Infrastructure projects have been sought after by pension funds in search of moderate risk and steady returns, as countries are stepping up investments in energy, transport and water projects as part of efforts to boost economic growth.
NPS had formed a joint fund last year with China Investment Corporation (CIC), Queensland Investment Corporation and other investors, targeting infrastructure that the Australian government plans to privatize. For the fund’s first investment, NPS had put A$500 million into a deal of securing a 50-year lease on Australia’s biggest container and cargo port in Melbourne.
EYEING STUDENT HOUSING
Among overseas real estate targets, the $450 billion fund is zooming in on student housing near universities in the United States and Britain, shifting away from office building and other commercial properties which saw a sharp price increase amid heightened competition from institutional investors.
“As research facilities were being built near universities in the U.S. and other developed countries, there is an accommodation shortage,” Kang said. “If we invest at a reasonable price, we can expect stable incomes.”
For real estate and infrastructure investments, NPS is seeking to reduce its dependence on external management firms, and make direct, joint investments with foreign pension funds. To do so, the NPS will boost hiring in its overseas offices.
“Final decisions will continue to be made at our head office, but we will encourage overseas offices to be more aggressive in exploring investment opportunities and participating in decision-making process,” the CIO said.
Real estate accounted for 49.6% of the NPS’ overseas alternative investments of 35.5 trillion won as of end-June.
By Chang Jae Yoo and Dongwook Jwa
yoocool@hankyung.com
With the price in power facilities in developed economies having surged on strong demand from pension funds, an equity investment could be an option to gain exposure to the assets held by an infrastructure company at a moderate price. Further, an equity holding in an infrastructure firm will allow the NPS to include the company’s infrastructure facilities in its investment portfolios, Myoun-Wook Kang, NPS’ CIO told the Korea Economic Daily.
“We will diversify channels of offshore infrastructure investments,” he said in an interview on the sidelines of 2016 ASK Global Real Estate & Infrastructure Summit hosted by the newspaper in Seoul on Oct. 20.
“Infrastructure companies pay high dividends, so we can expect steady dividend incomes as much as those from real asset investments.”
The world’s third-largest pension scheme will also diversify into non-traditional infrastructure such as airplanes and vessels. Earlier this year, it invested $300 million in acquiring a stake in a liquefied natural gas carrier leased by BP, British multinational oil & gas company.
Additionally, the fund is making a final assessment of its plan to commit about $200 million to a blind-pool airplane fund. “Travel demand is rising from China. The lessees are national carriers with high credit ratings, so the risk-adjusted return of the airplane fund is relatively high,” Kang added.
As of end-June, NPS committed 11.7 trillion won ($10.3 billion) to infrastructure, of which 6.5 trillion won has been executed.
NPS’ global alternative investment head, Sang-Hyun Yoo, said in a panel discussion of the summit that the pension fund was pacing itself in offshore real estate purchases after making heavy investments in the past few years, and was setting its eyes on infrastructure in Europe and Australia.
Infrastructure projects have been sought after by pension funds in search of moderate risk and steady returns, as countries are stepping up investments in energy, transport and water projects as part of efforts to boost economic growth.
NPS had formed a joint fund last year with China Investment Corporation (CIC), Queensland Investment Corporation and other investors, targeting infrastructure that the Australian government plans to privatize. For the fund’s first investment, NPS had put A$500 million into a deal of securing a 50-year lease on Australia’s biggest container and cargo port in Melbourne.
EYEING STUDENT HOUSING
Among overseas real estate targets, the $450 billion fund is zooming in on student housing near universities in the United States and Britain, shifting away from office building and other commercial properties which saw a sharp price increase amid heightened competition from institutional investors.
“As research facilities were being built near universities in the U.S. and other developed countries, there is an accommodation shortage,” Kang said. “If we invest at a reasonable price, we can expect stable incomes.”
For real estate and infrastructure investments, NPS is seeking to reduce its dependence on external management firms, and make direct, joint investments with foreign pension funds. To do so, the NPS will boost hiring in its overseas offices.
“Final decisions will continue to be made at our head office, but we will encourage overseas offices to be more aggressive in exploring investment opportunities and participating in decision-making process,” the CIO said.
Real estate accounted for 49.6% of the NPS’ overseas alternative investments of 35.5 trillion won as of end-June.
By Chang Jae Yoo and Dongwook Jwa
yoocool@hankyung.com
Yeonhee Kim edited this article
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