Korea Post Savings, an investment unit of the country’s national postal service, is set to add $4 billion of real asset exposure by 2025, mostly overseas and in debt deals and via mid-cap fund managers.
Property and infrastructure assets account for 5% of the institution’s $80 billion portfolio, incorporating both debt and equity holdings. The institution's plan is at least to double that allocation over the next five years, mostly by adding foreign exposure, head of global real assets Lee Jinho told AsianInvestor last week.
The increase will come largely at the expense of traditional assets, especially bonds, he added. This reflects the growing popularity of real assets among institutional investors in Korea and elsewhere in recent years.
Overseas investments make up around half of Korea Post Savings’ real asset portfolio currently, but their share of the total will rise substantially in the coming years, Lee said.
“The plan is to grow our international investment portfolio steadily,” he added, “but as last year was abnormal [because of Covid-19 travel restrictions], we were more focused on domestic investments.”
Korea Post Savings is focused on adding to its real asset manager roster for European and US investments, and particularly the latter, he added. “We have been looking to get more active in US markets and learn more about this asset class.”
Over the past three years, Korea Post has committed $700 million to six US infrastructure funds; $400 million for the savings unit and $300 million for the $50 billion insurance arm. That includes $200 million that the savings arm will hand to two US infrastructure specialists – Argo and Stonepeak – that it picked in December to manage mid-market core-type equity strategies.
Now, however, Korea Post will “focus more on [infrastructure and real estate] debt”, Lee said. “Real asset equity is expensive now, and on top of that we already have a fair amount of equity exposure.”
The institution will initially gain this exposure through external managers, added Lee, who has in the past said that fund houses could be better at differentiating their offerings.
TURNING TO MID-CAP MANAGERS
Korea Post Savings has so far largely focused on core strategies with big asset managers, such as Brookfield and Global Infrastructure Partners. But the fund is now looking to “balance our portfolio out by accessing small and mid-sized transactions, not just mega-deals”, Lee said.
Hence it is actively looking to work more with mid-cap managers – which he could potentially allow more flexibility and control in respect of investments – and is more open to opportunistic mandates.
Korea Post is also considering more separately managed accounts (SMAs), and is talking with a US asset manager about such a mandate at the moment. “We’re trying to find opportunities where we can team up with other US investors and form SMAs with the same investment goals.”
The fund is able to commit $200 million to a separate account, said Lee. “So we get a lot of proposals from managers”.
Korea Post Savings is also looking to executive more co-investment deals with like-minded investors, including other asset owners, he added, as it has done in the past.
The institution in 2017 partnered a major US pension plan to invest in US real assets and GP, Lee said, declining to name the latter fund. “We would like to have done more with them, but they had already built up their portfolio, and we were in the middle of building ours, so our objectives and portfolio gaps were different.”
RETURNS AND TENORS
Asked what level of returns he was targeting from the real asset portfolio, Lee said that depended on the risk level.
"We see a various range of returns across Europe and the US, and we can’t just say one is preferable simply because of the return potential. We want a balanced portfolio," he noted. "If a European debt asset is offering a yield of up to 4% or 5%, and the US asset is offering 6% or 8%, then, of course, we will look at the US asset, but we will still want exposure to Europe.
Lee declined to provide details of past portfolio performance.
As for deal tenor, Korea Post Savings is flexible, he said. “For debt, we can do five to 10 years, and often the same for equity too, though on that side we might go up to 20 years.”
The real asset buildout is in line with the institution’s push to increase its overall overseas exposure – which makes up about a quarter of total AUM – with a view to enhancing portfolio diversification and returns.
For instance, Korea Post is seeking two foreign fund managers for a $200 million direct lending portfolio that will exclude hedge funds, collateralised loan obligations and funds focused on sectors such as infrastructure, real estate and energy. Such private debt strategies fall under the remit of the institution’s private equity team rather than Lee’s division.
To hear more about how Korea Post and other institutions are investing in alternative assets, attend Global Alternatives Week: Korea 2021 next week. Lee Jinho will be speaking on a panel. For more information, please contact Iain Bell or Josh Jeon.