Australia, Asia real estate whet Korean pension funds' appetite

South Korean pension funds and insurance companies are raising bets on real estate, diversifying their US and Europe-focused portfolios into Australia and Asia, while increasing their appetite for distressed assets.
 
They believe the global real estate market is bottoming out on the back of falling interest rates. It is time to ramp up exposure to real estate equity investments, as well as to value-add and opportunistic assets, said their senior alternative investment managers at the global alternative investment conference ASK 2024.

"In 2022, we stopped all real estate investments in consideration of our liquidity situation, but resumed them in 2023 mainly through listed products such as REITs (real estate investment trusts) and through lending," said Harry Song, head of overseas real estate investment at the Public Officials Benefit Association (POBA), at ASK 2024 on Thursday.

POBA is setting its eyes on Australia's real estate market, Song told a limited partner panel discussion at the conference hosted by The Korea Economic Daily, South Korea's largest business and financial media group.

This year, it committed an additional 1.5 trillion won ($1.1 billion) to real estate funds, including a 90 billion won into Starwood Capital’s debt fund dedicated to Australia in June.

"We put developed markets ahead of other regions, but we're seriously looking at Asian, particularly Australia's [real estate] debt market," said Park Jun, a senior alternatives manager at Hyundai Marine & Fire Insurance Co. 

The Korea Teachers’ Credit Union (KTCU), with 40 billion won in assets under management, committed 110 billion won to PGIM’s debt fund investing in Australia this year.

HOUSING, DATA CENTERS

By segment, residential properties and logistics and data centers are at the top of their real estate lists, as well as renewable facilities.

"We may need to add data centers to our portfolio next year. We are willing to invest in a fund with data centers in its portfolio," said Kim Hyungon, a senior manager oversesing KTCU's infrastructure assets, referring to its real estate investment plan.

DIFFERENT STRATEGIES FOR OFFICE BUILDINGS

But Korean big asset owners show different stances on office and commercial markets.

Some of them will continue to shun the sectors after sharp valuation drops in those asset classes aggravated their liquidity problems amid a reduction in their subscribers' deposits in the wake of the COVID-19 outbreak.   

"We are making efforts to artificially reduce exposure to office assets and instead, we are looking to residential and industrial buildings as alternatives," said Hyundai's Park. 

"Offices are going through a very difficult time and retail sector does not look bad now. But it's not easy to buy them," POBA's Song noted.

In 2024, real estate was the worst performer for the Government Employees Pension Service (GEPS), for which property assets had accounted for more than half of its alternatives before COVID-19. 

However, the GEPS is turning aggressive in bottom-fishing office assets. It recently committed to value-added and opportunistic real estate funds after raising exposure to properties this year in a defensive strategy.

Hyundai Marine is chasing undervalued office buildings in good locations, as well.

"We are optimistic about the real estate market thanks to interest rate cuts and interested in special situation investments," said Hyundai Marine's Park. "There will be rare opportunities to buy prime assets [at discounts in 2025]."

Lotte Insurance Co. is exploring equity investments in distressed properties such as sharply discounted commercial buildings in central business districts, in addition to non-performing real estate loans, Park Jaehyun, managing director of Lotte Insurance’s financial investment division, said in another LP panel session on Wednesday.

Write to Yeonhee Kim at yhkim@hankyung.com
 


Jennifer Nicholson-Breen edited this article.