NZ Super, Poba eye real assets amid economic upheaval

Pension funds are joining a growing number of asset owners globally to find investment opportunities in real assets amid the Covid-19 fallout.
NZ Super, Poba eye real assets amid economic upheaval

A rising number of asset owners worldwide, including New Zealand Superannuation Fund and Korea’s Public Officials Benefit Association (Poba), are looking to increase their exposure to real assets to protect their portfolios against the negative impact of the coronavirus pandemic.

Stephen Gilmore

Real assets are an interesting area for potential investment, Stephen Gilmore, chief investment officer of the New Zealand Superannuation Fund, said in a podcast hosted by OMFIF* last week. 

"We’re relatively interested in gaining exposure to real assets over time. But of course, they have to be reasonably priced, and it’s possible that given the shocks [caused by the pandemic] that we have, there will be more opportunities to acquire real assets at more attractive pricing,” he said.

The NZ$46 billion ($30.29 billion) sovereign wealth fund’s reference portfolio is split 80% and 20% between equities and bonds. Its real portfolio has about 70% equities, slightly under 10% bonds, and about 10% in real assets including real estate, infrastructure and timber, with the rest in alternatives like private equity.

Despite the deviation, the risk exposure in the real portfolio is not very different from the reference portfolio, Gilmore said. Real assets were the largest contributors to the outperformance of the reference portfolio in 2018-2019.

Meanwhile, Poba, which had indicated its interest to gain exposure to real assets last year, said the pandemic is encouraging it to invest more aggressively this year.

“The pandemic has, to some extent, made us focus more on infrastructure. They do not expose us to corporate delinquencies; most of them are long-term and resilient assets,” Jang Dong-Hun, chief investment officer of Poba, told AsianInvestor.

Jang Dong-hun, Poba

Poba had 35.7% of its W14.3 trillion ($12 billion) portfolio invested in real assets as of the end of 2019. These include domestic and overseas real estate as well as offshore infrastructure. The exposure has since increased to about 40% as of today after the fund acquired more overseas infrastructure assets, he said.

Going forward, Poba plans to keep its overall exposure to real assets at the same level but will invest most of the new funds it receives in this component.

It is looking to engage general partners to invest more in infrastructure debt and public-private partnership projects (PPP) in countries that belong to the Organisation for Economic Co-operation and Development. These assets are mainly driven by GDP, which meets Poba’s conservative investment appetite.

The assets also provide stable cash flows to investors, allowing Poba to meet its payment needs, he said.


Another retirement fund that plans to invest in real assets is the Ontario Teachers’ Pension Plan. Canada’s third-biggest retirement scheme told AsianInvestor in April that it would be adding new offices and hire considerably more staff in the region over the next five years, with a focus on private markets and in particular real assets.

Asset owners globally are increasingly integrating real assets into their portfolios as central bank intervention during the current economic upheaval supported long-duration assets, according to OMFIF's 2020 Global Public Investor report.

The report said that 33% of pension funds and 38% of sovereign funds intend to increase their holdings of real estate. This is despite uncertainty in some sectors such as hotels and retail.

Rushabh Desai, Asia Pacific chief executive of Allianz Real Estate, explained that the negative real risk-free rates have continued to provide support for real estate yields. A diversified long-term real estate portfolio with down-side protected income profile will be the key differentiating factor for institutional investors, he told AsianInvestor.

Rushabh Desai

The OMFIF report also said that 63% of sovereign funds are seeking more infrastructure exposure. Such demand is set to boost real asset pricing over the coming 12 to 24 months, according to the report which surveyed the performances and practices of 750 central banks, sovereign funds and public pensions funds with combined worldwide investible assets of $39.5 trillion.

Airlines, automobile manufacturers and railway operators, hardest hit by the pandemic shock, would make strong candidates for sovereign fund portfolios, it added. Sovereign funds such as Temasek, Khazanah Nasional and Dubai Investment Corporation have offered financial support ranging from $2 billion to $13 billion to their respective national carriers, according to the OMFIF report.

* OMFIF is an independent forum for central banking, economic policy and public investment. It is also a platform for best practice in worldwide public-private sector exchanges.

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