Korea’s Public Officials Benefit Association (Poba) is expanding its asset owner partnership strategy into European commercial real estate, with the Korean pension fund having agreed to ally with a Danish peer.

Poba has signed a memorandum of understanding for a real estate joint venture with pension fund PFA. The two parties are currently working on the final details about how best to proceed, both Poba and PFA confirmed to AsianInvestor.

PFA is Denmark’s largest commercial pension fund, with a total AUM of DKK584.98 billion ($86.4 billion) as of end-June. Meanwhile Poba had total AUM of W13.5 trillion ($11.39 billion) at the end of September.

The JV will give Poba, which invests on behalf of Korea’s local government employees, more direct ownership and thus increased control of some of its property investments. It is keen to mitigate risk within its alternatives portfolio, which made up around 58% out of its total AUM.

Jang Dong Hun

“This joint venture will complement Poba’s portfolio strategy in the European market,” Jang Dong Hun, chief investment officer at Poba, told AsianInvestor.

“We are pursuing these JV-style investments more in each [alternatives] asset class. After the details of this project is finalised, we are keen to explore some additional projects to collaborate further with PFA.”

HOUSING AND LOGISTICS

The two parties said it is too early to disclose what real estate asset types and risk/return profiles the vehicle will target, or the amount of capital that the two asset owners will respectively contribute. However, Poba’s CEO Han Gyeong-Ho said in September 2019 that the joint fund is expected to reach a size of around W900 billion, or $760 million.

The JV is intended to work as a fund that invests in individual deals or portfolios, with various asset managers as operating partners. Jang and colleagues met with Michael Bruhn, head of real estate for PFA, at Poba’s Seoul office on Monday (October 14) to discuss the alliance, and the two organisations will conduct further dialogue over the coming months.

For both investors, the alliance makes strategic sense. Jang noted that logistics and residential are good defensive investment targets in the current time of the economic cycle.

That perspective resonates well with Bruhn.

Michael Bruhn

“Poba is a fantastic partner as it is a long-term investor like PFA,” he told AsianInvestor. “Our strategic approaches overlap with a focus on absolute returns, and we agree on real estate investment themes in the European market such as logistics and multifamily residential.”

PFA is a serious property investor. At the end of June it had €9.5 billion ($10.5 billion) invested in real estate globally, of which 8% was invested in the UK, 43% in the domestic Danish market and 16% in the rest of Europe.

In comparison, Poba had W1.9 trillion invested in overseas real estate equity and debt at the end of 2018, 38% of which was sourced from European markets.

PARTNERSHIP PERKS

Poba’s JV with PFA marks its latest effort to ally with renowned global asset owners as it seeks to broaden its array of investments.

In 2018, the public pension scheme launched $400 million joint ventures with California State Teachers’ Retirement System (CalSTRS) and Teacher Retirement System of Texas (TRS) respectively to invest in US real estate debts. Poba committed $200 million to each JV. In May 2019, Poba doubled its investment with CalSTRS

Jang said partnering with such asset owners offers several perks. For a start, it offers more control through direct investments while sharing risk with partners. In addition, the investment model allows Poba to tap into the local knowledge and contacts through its partners; something it would struggle to acquire alone.

“Globally we are regarded as a small- or mid-sized public pension,” Jang said. “That tends to make it challenging to construct the desired portfolio that we would like to have. When the JV with PFA is completed it can complement our global real estate portfolio.”

PFA has also conducted JVs and club deals with other institutional investors in the US, Europe and Asia. One example is its acquisition of the office and retail complex Devonshire Square in City of London in April 2018 for around DKK5 billion, which included costs for further redevelopment of the asset.

Its partner for that project is TH Real Estate – now renamed Nuveen Real Estate – the real estate asset management arm of the Teachers Insurance and Annuity Association of America, or TIAA.

“We have followed this collaboration strategy for some years because it gives us greater control of the invested capital. As the size and complexity of our investments increase, we see an advantage of having a hand on the steering wheel,” Bruhn said.

PFA has indeed been increasing the size of its investments. In August 2018, the pension fund made a solo acquisition at a price around DKK6.6 billion in a German residential portfolio, with additional development potential for over DKK 1 billion. The investment is PFA Real Estate’s largest single real estate investment to date.