NPS commits $436 mn to Koramco, Hana Alternative for real estate lending

The National Pension Service (NPS), South Korea’s largest institutional investor, has selected Koramco Asset Management Co. and Hana Alternative Asset Management Co. as managers of its real estate debt fund valued at 600 billion won ($436.1 million).

This marks the first time in five years that the world’s third-largest pension fund, with 1,150 trillion won worth of assets under management (AUM), has committed to outside real estate asset managers.

According to investment banking industry sources on Thursday, Koramco and Hana Alternative passed the final quality-based evaluation to win the NPS’ commercial real estate lending fund worth 600 billion won.

Kyobo AIM Asset Management Co. was shortlisted alongside the two winners, but failed to join them.  

The move is part of the Korean public pension fund’s 1.35 trillion won real estate investment project. The NPS will soon kick off the process of selecting three asset managers for a core platform fund valued at the remaining 750 billion won.

Last month, NPS Chairman Kim Tae-hyun said in a keynote speech at the global investment conference ASK 2024 that the pension service will raise its exposure to real estate assets, including data centers, to take advantage of lower interest rates.

Over the medium- to long-term, the NPS will diversify its real estate portfolio into biotech research and health care centers, as well as rental housing and protech facilities, he added.

COMMERCIAL REAL ESTATE DEBT FUND

Koramco and Hana Alternative will operate funds that invest in Korean commercial real estate lending with a loan-to-value (LTV) ratio set at 70% and higher and a target annual return of 6.1%.

They are barred from investing in residential properties.

The fund is allowed to lend in riskier preferred equity and subordinated real estate debt, however, as the yield on senior debt recently dipped to the low 5% range. The LTV for preferred equity is set at up to 85%.

Investment in preferred equity and junior debt, however, cannot exceed 30% of the total fund.

In the case of project financing, only senior debt lending to already assessed and approved projects is allowed, whereas investing in bridge loans is off limits.

FIRST TIME IN FIVE YEARS

The NPS last committed real estate funds to external asset managers in 2019.

Its core platform fund is expected to draw more interest from asset managers because it is an equity investment fund.

It will invest not only in traditional real estate assets such as office buildings and hotels but also in the so-called new economy sector with at least 30% of the fund.

The new economy refers to new, high-growth industries driven by cutting-edge technologies.

Koramco Asset Management is an alternative asset investment company under Koramco REITs Management and Trust Co., Korea’s first real estate finance company. Its AUM stood at 13.35 trillion won as of December 2023.

It has already opened a liaison office next to NPS headquarters in Jeonju, North Jeolla Province, to deepen collaboration with Korea’s largest institutional investor in real estate investment.

Hana Alternative Asset Management, boasting an AUM of $8.56 billion as of November 2024, is the alternative investment arm of Hana Financial Group, Korea’s third-largest financial holding company.  

Write to Byeong-Hwa Ryu at hwahwa@hankyung.com

Sookyung Seo edited this article.