NPS to invest $100 mn in BBAM’s blind-pool aircraft fund

South Korea’s National Pension Service (NPS) will make its first investment in a blind-pool aircraft fund by committing $100 million to a $1 billion fund of BBAM, the world’s third-largest aircraft leasing and management company.

The fund of San Franciso-based BBAM has a 10-year maturity, according to investment banking sources on April 23.

BBAM has bought 408 Airbus and Boeing aircraft and leased them to 200-odd airlines, including Lufthansa, United Airlines and Cathay Pacific.

The investment decision by NPS comes as Korea Investment Corporation (KIC), the sovereign wealth fund of South Korea, is considering investing in a blind-pool fund which Castlelake L.P. is in the process of raising for $750 million to $1 billion.

KIC plans to invest in at least one blind-pool aircraft fund, within this year, which may be the Castlelake fund or not.

Public Officials Benefit Association (POBA) and Korea Scientists and Engineers Mutual-aid Association have already decided to put around $50 million each into the Castlelake’s new aircraft fund, in their first investment in such kind of a fund. The California Public Employees’ Retirement System (CalPERS) and Florida’s state pension fund are known to join in the fund.

With competition squeezing returns from aviation funds, South Korean pension funds began to show interest in blind-pool aviation funds of global management firms.

“We are expecting funds of global asset managers, which have proven track records, will yield stable and higher returns than local asset managers’ aircraft funds which rely on the individual company’s capabilities,” a South Korean pension fund’s CIO told the Korean Investors.

A blind-pool aircraft fund of Minneapolis-based Castlelake closed in 2010 is known to have posted over 20% internal rate of return up to date.

By Hugh YH Jeong and Taeho Kim

hugh@hankyung.com