South Korean insurer ABL Life is keen to ramp up its real estate investments and has set its sights on Australia as its preferred investment destination, in part because of the country’s favourable regulatory policies.
“We will be focusing on real estate, and we aren’t hesitant to expand real estate investments at this stage. Most Korean investors focus on, for example, the US, UK, Germany and other western European countries. But we're different. We'll be focusing on Australia,” Eoh Jiroo, ABL’s head of infrastructure and real asset investments, told AsianInvestor.
“There will be a regional [allocation] reshuffling [in the real estate investment portfolio]. In other words, the US money, [that is available when the investments mature], would be recycled into Australia,” Eoh said.
The target assets will be commercial real estate like office buildings in the central business districts, and logistics like industrials and construction loans, which can deliver an annual return of 7% to 8%, he said.
In addition to attractive real estate valuations and favourable immigration policy that supports population growth in the country, ABL Life’s preference for the Australian market is also driven by its low rate of forfeiture. The average rate of real estate purchases being cancelled or withdrawn is less than 3%.
Under local rules, buyers cannot just walk away from an agreed transaction even when they give up their deposits under certain circumstances. Even during a credit crisis period, the cancellation rate is less than 6%, Eoh said. “Those kind of low [figures] make [it] comfortable for investors like us.”
ABL Life has 20% of its $20 billion portfolio invested in alternatives. The majority of its allocation to alternative assets is in infrastructure, while about a third is in real estate. The US market now accounts for about half of the portfolio, followed by Australia and Europe. He declined to give specific numbers on the proportions.
The insurer's ultimate aim is to have Europe, Australia and the US enjoy largely equal weightings in its real estate portfolio, but that will take three or five years because ABL Life has less experience in the European market, "and hence our initial target is Australia", Eoh said.
ABL Life is among several South Korean asset owners that are increasingly seeking exposure to real assets overseas in their hunt for higher yield. Korea’s National Pension Service (NPS) and Public Officials Benefit Association (Poba) have formed joint ventures with overseas asset owners or managers to invest in real assets globally.
Earlier this month, NPS awarded a $1 billion global-listed real estate mandate to US asset manager Russell Investments. The award represents the state retirement fund's latest move to step up exposure to alternative assets.
ABL Life said it plans to source its own deals in Australia. It will also join hands with external asset managers, adding that the Covid-19 pandemic has resulted in a better understanding about what kinds of managers it wants.
“It’s half and half. Sometimes we bid. Sometimes we go with asset managers. But nowadays, we mostly focus on [collaborating with] asset managers because we just don't have enough resources,” said Eoh.
He added that the insurer is open to consider working with smaller and medium-sized managers due to unpleasant experiences with a reputed manager during the pandemic period.
“If something goes wrong, we rely on the managers. And if they don't care about us, that's it for us. We can't do anything,” Eoh said, declining to outline what had happened.
“We have very limited access to information, especially local information,” he said, adding that the situation is particularly challenging with travel restrictions, which hinders the due diligence process. "Managers that provide frequent updates and communicate well will be the ones that we would like to work with in the future. It is very important,” he said.