Asset owners across Asia are showing an increasing interest in investing via asset owner partnerships, especially into alternative asset classes.
Thailand’s Government Pension Fund just told AsianInvestor that it is contemplating teaming up with pension funds from other countries as it continues to ramp up its exposure to alternatives. And in January Hiromichi Mizuno, chief investment officer at Japan’s Government Pension Investment Fund, hinted to AsianInvestor that the world’s largest pension fund is likely to start partnerships in a foreseeable future.
Korea’s Public Officials Benefit Association (Poba) is a trailblazer in this space, having already initiated partnerships with other asset owners in alternative investments. On January 16 Poba and California State Teachers’ Retirement System (Calstrs) agreed to set up a $312.5 million joint venture (JV) into equities in US multifamily residential real estate.
Jang Dong Hun, chief investment officer at Poba, said the W13.9 trillion ($11.7 billion) pension fund (as of end-November) goes through a long and thorough decision-making process before investing in new asset areas.
“When we have consulted with overseas GPs (general partners) as well as our internal research material, we always think about whether this is the right direction and strategy,” Jang told AsianInvestor.
“We ask ourselves first, and when we [then] talk with partners like Calstrs and other global pension funds in our network, we can validate if our direction is right or not.”
He stressed even comprehensive research cannot guarantee that an investment continues to show stellar performance. Therefore, it helps to calibrate investment beliefs with peers.
“We think as long as investment decisions are based on our research, we can trust our judgment. When our partners around the world also have a direction that is quite like ours, we can validate our strategic direction even further,” Jang said.
Calstrs, Poba’s US multifamily JV partner, is also committed to expanding partnerships with asset owner peers. And, in terms of asset size at least, the Californian pension plan has a far weightier voice than its Korean peer.
It had AUM of $230.2 billion at the end of 2018, making it the US’s third-largest pension fund and the 22nd largest globally, according to the global ranking Asset Owner 100 by advisory firm Willis Towers Watson’s Thinking Ahead Institute, published on November 13, 2019.
Calstrs has increasingly strayed away from using external asset managers – and especially their commingled funds – for exposure to alternative investments. At the same time it has sought to insource asset management.
These are practical measures, given the cost of using GPs. In 2017, Calstrs paid $1.8 billion to external managers to look after 56% of its total portfolio, while it cost just $30 million to internally manage the remaining 44%, according to an oversight of internal and external management costs. By increasing inhouse management the pension fund aims to increase control over its investment portfolio, cut fees and achieve better returns.
Over the past few years Calstrs has gradually rolled out a strategy across the portfolio that is designed to further increase the investments via separate accounts as well as club deals, joint ventures and co-investments with other institutional investors, dubbed the Collaborative Model.
While it had used these investment strategies for decades, it is increasingly favouring them. And partnerships play a key role.
“Forming joint ventures is aligned with the implementation of Calstrs’ Collaborative Model—an investment approach that enables Calstrs to build direct investing capabilities while continuing to embrace external partnerships. Joint ventures give [us] access to a greater array of opportunities, high levels of control and attractive and aligned fee structures,” Mike DiRe, director of real estate at Calstrs, told AsianInvestor via email.
In addition, the pension plan aims to acquire operating management firms that can act as an extension of its investment strategy. An example of this is its multifamily JV with Poba. Apartment manager Fairfield Residential, which is majority owned by Calstrs, will commit $12.5 million to the project alongside the two pension plans and act as the operating partner.
The availability of such expertise appeals to would-be partners too. “By doing these JV style investments, we can source really good, highly qualified external GPs from overseas,” said Jang.
MORE PARTNERSHIPS IN SIGHT
The US multifamily JV between Calstrs and Poba follows an earlier $400 million JV for US real estate debt that the two committed $200 million to in 2018. They then doubled their respective contributions to the JV last year.
“The partnership with Poba has been a positive one. We are planning on leaning into strong relationships such as this one with Poba and continuing to invest with them as part of the Collaborative Model,” DiRe said.
At Poba, Jang also hopes to expand the partnership further into other within alternative asset classes.
“Now we are discussing some other investment cases that for the time being have not been finalised. We are trying to expand this JV style investments into other asset classes, such as infrastructure or private credit. We try, and we will see what opportunities that present themselves,” Jang said.
Plus he is keeping an open mind on other ideas, geographies and partners.
“We do not pinpoint specific areas around the world. For these JV investment cases, it can be US, Pan-Asia or Europe markets. We don’t have any strict limitations,” Jang said.
In addition to the Calstrs partnership in the US, Poba established a similar real estate debt $400 million partnership with Teacher Retirement System of Texas in 2018.
Meanwhile in Europe’s real estate market, Poba co-invested W870 billion in a logistics portfolio with Danish pension fund PFA and German asset manager Patrizia in December 2019. The investment was the result of a partnership with PFA, which was established in October 2019.