Korea NPS Flocks to Asian and Australian Real Estate

(October 1, 2010) — In its latest effort increase its overseas allocation, South Korea’s National Pension Service (NPS), the world’s fifth-largest pension with $263.4 billion in assets under management, will invest $400 million in the Asian and Australian real-estate markets.

The NPS has revealed plans to expand its exposure to alternative assets, including real estate, to more than 10% of its assets by 2015.

An NPS spokesman confirmed with the Wall Street Journal that the pension will invest in a fund managed by Pramerica Real Estate Investors, a real-estate investment arm of US-based Prudential Financial Inc. NPS will be the sole investor in the fund, which will make its investment over a three year period. The total value of the investments — mainly in Australia, China, and Japan — could be as much as $1 billion if the fund takes out loans or other financing, the WSJ reported.

Currently, international property consists of less than 1% of the fund’s portfolio. However, the NPS has boosted exposure. Earlier this month, the fund said it will invest $300 million in US property through real estate investment firm Townsend Group. “We believe this to be an opportune strategy, at this point in the market cycle, as the industry struggles with ongoing liquidity and capital constraints of traditional participants,” said Anthony Frammartino, partner at Townsend, in a statement. “As capital raising for new fund investments proves difficult, there remains a dearth of organized capital that can act with a sense of urgency and also provide critical mass for execution.”

The pension has also targeted its focus on European property. Last year, NPS bought HSBC’s Canary Wharf headquarters $1.2 billion and this year, the pension took a 12% stake in the UK’s Gatwick airport, the Financial Times reported. In August, the pension said it was in talks to purchase a 51% stake in a large shopping mall near Paris, and it’s in ongoing talks to buy a stake in a US oil pipeline operator.

The South Korean fund has been investing in overseas stock and real-estate markets to diversify away from domestic fixed-income holdings. Its recent deals reflect a sign that foreign investors increasingly are delving into real estate markets abroad, flocking to troubled property funds for their steady returns in hopes of a rebound.