Homeplus deal highlights LP shift to direct

Large asset owners are increasing direct stakes in private assets instead of using funds.
Homeplus deal highlights LP shift to direct

When Canada Pension Plan Investment Board announced on Monday, September 7 that it was taking a $534 million co-investment into Homeplus, the Korean unit of retail chain Tesco, it highlighted a growing preference for direct access to assets.

“Increasingly, LP investors are moving away from passive fund investments into direct real estate investments, alongside experienced operators,” said Stuart Crow, head of Asia Pacific capital markets at real estate services firm Jones Lang LaSalle.

That trend is playing out across the broader private markets investment universe, whether investors are acquiring equity stakes in real estate, infrastructure or companies' operating businesses.

In CPPIB’s case, it took a stake in Homeplus within a consortium led by MBK Partners, the largest domestic buyout firm in Korea, which bought the company for £4.2 billion ($6.4 billion). Singapore’s Temasek and another Canadian group, Public Sector Pension Investment Board, were also members of the consortium.

In May, CPPIB teamed up with Singapore’s GIC to acquire another Korean retailer, D-Cube Retail Mall, for S$348 million ($244 million).

This is in line with increased comfort among sovereign wealth funds, pension funds and other long-term institutions for direct access to assets. According to Preqin, a data provider, 50% of institutional investors are considering, or will consider, investing in infrastructure via separate accounts. The comparable figure for private equity is 78%.

Those figures have been steadily rising in recent years. At end 2011, 21% of real estate investors said that they will invest in separate accounts, rising to 28% this year.

Figures for co-investments and joint ventures are higher still, as investors increase allocations to these structures.

Sixty one percent of infrastructure investors are considering, or will consider, investing in infrastructure via co-investments, for example. That figure is even higher for large asset managers: 73% with over $10 billon AUM make co-investments.

The trend is similar when it comes to real estate investment: 31% of institutional investors said that they will invest more in real estate over the next 12 months (than in the last 12) via co-investments, according to mid-year investor interviews undertaken by Preqin. That was higher than the figures for joint ventures (24%) or separate accounts (20%).

All three alternatives to comingled funds – co-investments, joint ventures and separate accounts – offer lower management fees and greater control over specific assets, but entail larger investment sizes.

“The trend of sovereign wealth funds and global funds partnering with local parties is the most prevalent in emerging market such as India,” said Crow.

The shift is driven as much by investors’ increasing sophistication as it is by the growing demand for private assets and the competition around sourcing them.

“Partnerships or joint ventures allow new entrants to gain local knowledge and competitive advantage,” said Crow.

Another example is Canada’s Brookfield Asset Management, which made its first direct investment in Indian infrastructure on 28 August via BIF India Holdings, a joint venture between Brookfield and the Core Infrastructure India Fund, which is managed by the Singapore branch of Kotak Mahindra.

“This is a similar approach taken by Brookfield in its earlier acquisition of Unitech Corporate Park’s Indian real-estate assets,” said Brookfield’s investor relations officer Andrew Willis. The company took a controlling stake in both cases.

Brookfield Property Partners completed India’s largest real estate deal last year, acquiring six industrial parks from Unitech for 35 billion rupees ($526 million).

The nine infrastructure project companies – including six road and three power projects – which BIF India Holdings has agreed to acquire from Gammon Infrastructure Projects Limited (GIPL) are valued at around 26.6 billion rupees ($399.5 million).

The deal also marks one of the first multi-project divestments by infrastructure developers in India. Many of those companies have been evaluating divestments since 2013, in order to deleverage their balance sheets.

Kotak’s Core Infrastructure India Fund is yet to reach final close. Brookfield and Japan’s SMBC and the Japan Bank for International Cooperation accounted for $64 million of commitments, or over two-thirds of the $90 million raised at first close in March 2013.


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