Why Korea’s NPS and Poba are piling into real asset JVs

The two public pension funds are increasingly forming partnerships to grow their property and infrastructure exposure globally. What's the thinking behind this trend?
Why Korea’s NPS and Poba are piling into real asset JVs

Korea’s National Pension Service (NPS) and Public Officials Benefit Association (Poba) are among the growing number of Asian institutions forming joint ventures with overseas asset owners or managers to invest in real assets globally.

Such alliances provide cost benefits, access to more expertise and the ability to exert greater control over deal structures – but they also take time to establish and can pose greater downside risks, note institutional investors. Still, asset owners seem to feel the trade-off is worthwhile, as they expect alliances to grow in popularity for private market investing.

On December 11 NPS and US property asset manager Hines unveiled a $1.5 billion build-to-core joint venture. Also this month, the Korean fund announced a JV with another US real estate investment manager, Stockbridge, to buy core logistics assets, and in September it struck a partnership with Singapore’s Keppel Capital to invest in Asian infrastructure. NPS also recently formed a landmark alliance with Dutch pension fund manager APG to invest in large real asset deals.

Jang Dong-Hun, Poba

Overall the Korean pension giant is planning to raise its alternative investments to 15% of its $672 billion portfolio by 2025, up from 12% as the end of August. It also said in July that it would seek to invest 55% of its assets into foreign assets by 2025, up from its former target of 50% by 2024.

Poba has also been busy inking alliances or seeking opportunities to do so. It agreed in January to set up a $312.5 million JV with California State Teachers’ Retirement System to invest into US multifamily residential real estate. That came after it formed an alliance with Danish pension fund PFA in October last year.

At least partly as a consequence of Covid-19, Poba is looking to increase its exposure to real assets, Jang Dong-hun, Poba’s chief investment officer (CIO), said in August. Such investments then made up around 40% of its W14.3 trillion ($12.28 billion) portfolio. The fund is looking to invest most of the new funds it receives to real assets.


As deal and overall portfolio sizes increase, asset owners become more inclined to deploy capital in separately managed accounts, either via direct investments or JVs, Jang told AsianInvestor this month. Direct investments generally come further down the line once institutions have built up substantial internal capabilities.

Forming JVs provides greater control and alignment of interest than investing in funds, Jang added. “That’s the main reason and advantage.”

Reducing cost is another key attraction: the fee expense in a JV is about a third cheaper than in blind pool funds, depending on investment scale and target assets, he said.

One reason for this is the partnership structure involved, said an investment executive at a sovereign wealth fund on condition of anonymity. Investing as a limited partner in a private fund means the LP’s liability is limited or ring-fenced. The general partner – or asset manager – has a fiduciary duty to act in the best interest of the LP and risks legal action if it does not.

But while the costs are lower and the level of control greater in JVs than in fund investments, investors must commit larger amounts of capital to the former, Jang said. Accordingly, there is more potential downside in JVs than in blind pool funds, he added, so finding the right partner is key.


That’s one reason why it takes a lot of time and effort for an investor to form an effective partnership with another asset owner or asset manager.

“We haven’t done so much so far, because it’s time-consuming to start something like that [an investment tie-up], but it’s something we’re looking at,” Anders Schelde, the CIO of Denmark’s pension fund for the academic sector, told AsianInvestor in November.

Ahn Hyo-Joon, NPS

Investment alliances require a high level of trust that takes time to build, confirmed Ahn Hyo-Joon, chief executive of NPS, and APG chairman Ronald Wuijster. They told AsianInvestor that the similarity between the goals and size of their two organisations helped align their interests in their own partnership.

Ahn and Wuijster said the two funds had initiated the tie-up to improve their access to big real asset transactions, increase their bargaining power, reduce investing costs and, ultimately, improve investment returns.

Certainly there seems to be rising interest in forming JVs in certain asset classes, such as real estate, but Janet Li, wealth business leader for Asia at Mercer, said she did not yet see this as a wider trend among asset owners in Asia.

But both Jang and Schelde of AkademikerPension see partnerships as likely to grow in popularity among investors for accessing private markets.

Real assets lend themselves well to this approach, noted Schelde. Danish pension funds have collaborated on global infrastructure investments in recent years, he said. “We have formed a partnership as one investor to get better access and better fees.”

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