Castlelake’s aviation fund may draw $200 mn from Korean investors: report

The Public Officials Benefit Association (POBA), the Korea Scientists and Engineers Mutual-aid Association and other South Korean institutional investors are likely to invest a combined 230 billion won ($201 million) in an aircraft financing fund which private investment firm Castlelake L.P. is raising for 1.1 trillion won ($963 million), a local newspaper reported on April 16.

The two South Korean savings funds and Shinhan Bank, a top domestic lender, have decided to commit between 30 billion and 60 billion won to Castlelake Aviation Stable Yield, respectively, which would become the first investment in a blind-pool aviation fund by a South Korean institution, the Maeil Business Newspaper said, citing unidentified investment banking sources.

Sovereign wealth fund Korea Investment Corporation and Korea Teachers’ Pension are also considering participating in the fund, it added.

The fund will be used to buy airplanes which have been in use for between four and 13 years and leased to airlines with high credit ratings.

It is targeting an annual return of 10% or above.

The aviation fund has already drawn about 870 billion won from other countries. After completing the 230 billion won fundraising in South Korea, Castlelake will close the fund at 1.1 trillion won.

Castlelake, with around $9 billion of assets under management, has invested more than $3.5 billion in aircraft assets and obligations. Its aircraft investment focuses on high cash flows and mid- to end-of-life commercial aircraft and engines.

South Korean institutional investors are emerging as a new funding source that appears to have reached critical mass in the aviation financing industry, alongside banks from Taiwan, Japan and Australia, according to Boeing in its 2017 aircraft finance market outlook.

Boeing expects aviation financing and aircraft leasing markets to remain strong in 2017 with global air traffic growth. But with competition and high commissions  lowering returns from aircraft funds, Korean institutional investors are looking for funds with diversified portfolios and low brokering fees.