92% of Korean LPs won't increase real estate exposure

Institutional investors of South Korea aim to increase their alternative assets, focusing on expanding private debt, according to a recent survey of 26 limited partners. The LPs’ demand for real estate investment was low, the survey found.

The Korea Economic Daily's survey of these 26 institutional investors focused on their alternative investment and manager selection. The surveyed investors include public pension funds, sovereign wealth funds, mutual aid organizations and insurers. 

The alternative assets managed by the LPs total 381.1 trillion won ($317.8 billion), accounting for an average of 28.4% of their AUM. Some 24 of the 26 LPs said they currently manage 204.4 trillion won in overseas alternative assets.   

Asked if they will expand alternative assets, 18 LPs said they will expand while six said they will hold their current proportion. Only one said it will reduce. Given that their total AUM will increase, their alternative asset size is expected to significantly grow.

By type of institutions, all the six pension funds and SWF said they will enlarge alternative investments. Out of six mutual aids, three said they will increase while the others said they will maintain the current proportion. Out of 14 insurers, nine said they will expand and three said they will maintain the current ratio. One insurer said it will reduce.    

To view responses of individual institutions on their alternative asset allocation and fund manager selection, please visit Asset Owners Report.



'PRIVATE EQUITY, REAL ESTATE OVERVALUED'

Most of the LPs think that global private equity and real estate are especially overvalued, the survey showed.

Asked if each global alternative asset class is fairly valued, around 89% said private equity is overvalued or highly overvalued. About 85% of the respondents said real estate is overvalued or highly overvalued. None of the respondents said private equity or real estate is undervalued.   

On the other hand, only 42% of the respondents said private debt is overvalued and 50% said the asset class is fairly valued. Around 58% of the LPs said infrastructure is overvalued or highly overvalued, and 35% said it is fairly valued.



MORE PRIVATE DEBT FOR STABLE CASH FLOW

The LPs’ asset allocation plans reflected their thoughts on valuation. Allowed for up to two choices, 73% of the respondents said they intend to increase private debt, 50% said they will expand infrastructure, and 46% said private equities.

Only 8% said they would increase real estate exposure. Hedge fund and multi-assets, respectively, were chosen by 8% of those polled. 


Insurers were willing to increase global private debts the most –11 out of the 14 insurers said they will expand private debt investments, while two said they will keep the current proportion.

Four pension funds and SWF said they will increase private debts while two said they will hold the current ratio. Three mutual aids will increase global private debt while one will keep the current proportion, the survey showed. None of the respondents said they will reduce global private debt. Their expected average return from global private debt was 6%.   

Most of the LPs are hopeful for stable cash flow from private debt investment, the survey found. About 65% of the LPs expect steady cash flow while 15% pursues diversification effect from private debts. Some 4% said they want all the values of steady cash flow, diversification and fixed income substitute.

The surveyed LPs target a 5.7% return on average from their overall alternative investments. Also, they expect a 6.3% return on average from overseas and 5.3% from domestic alternative assets.

To view responses of individual institutions on their alternative asset allocation and fund manager selection, please visit Asset Owners Report.



Write to Chang Jae Yoo at yoocool@hankyung.com
Jihyun Kim edited this article.