Blind pool funds eclipse project funds for Korean asset managers

A growing number of South Korean asset management firms are preparing to launch their own blind pool funds for global real estate investments, which, allowing quicker decision-making and deal execution, would give them a better chance to secure coveted assets than project-based funds. 

Mastern Investment Management Co., with 26 trillion won in assets under management, is in the process of raising about 300 billion won ($253 million) from domestic institutional investors in a blind pool fund for overseas real estate debts, according to investment banking sources on Oct. 14.

The debt fund targets an annual return of 4-5% from lending against core assets in Europe's gateway cities. London-based M&G Investments will be in charge of deal sourcing and asset management for the vehicle.

Korean investment firms have been aggressive in overseas real estate investments over the past few years, backed by deep-pocketed pension funds such as the National Pension Service. But the bulk of their deals were made through project funds, which are raised for pre-specified targets, and via global asset managers' investment vehicles. 

This year they resumed overseas business trips even at the height of the global pandemic in their renewed push for overseas real estate deals. But many of them, armed with project-based funds, returned empty-handed.

"To buy overseas real estate, we now need to finalize our decision-making process within one to two weeks and pay the money immediately," said a domestic asset management company source. "In that condition, global asset managers running blind pool funds are able to make a quick decision and have the upper hand."

In addition to the difficulty of conducting onsite due diligence on overseas properties, some domestic blind pool funds' losses from overseas real estate dampened interest in global blind pool funds managed by domestic companies, which amounted to about five.

"When it comes to blind pool funds, asset management firms play a key role," said a Korean pension fund source. "But we have no confidence about their expertise in making overseas investments, so we have carried out only project-based investments with them."

Real estate blind pool funds likely to be launched by Korean asset managers

Asset Manager	Fund Size	Target Assets/ Regions	Target Return
Mastern Investment Management	about 300 billion	Core assets in Europe	4-5% per annum
Samsung SRA Asset Management	300 billion won	Europe, US	N/A
KTB Investment & Securities, NH-Amundi Asset Management	300 billion won	N/A	N/A
Source: Industry sources

Samsung SRA Asset Management Co. is working on its third overseas real estate blind pool fund. The fund will raise 150 billion won from Samsung Life Insurance Co. and an additional 150 billion won from domestic institutional investors.

Then, the Samsung SRA fund will co-invest in overseas real estate, with an unidentified global asset management firm which will pump another 150 billion won into their joint investments.

KTB Investment & Securities Co. and NH-Amundi Asset Management Co. plan to raise around 300 billion won combined for their blind pool fund. They will gather money mainly from NH Financial Group, South Korea's agricultural cooperative. NH-Amundi Asset is a joint venture between NH Financial and Amundi, a French asset manager. 

Vestas Investment Management Co. recently began the process of launching its second blind pool fund for overseas real estate, following its first fund of 300 billion won set up late last year with a focus on Europe's logistics real estate.

Two other Seoul-based asset managers -- IGIS Asset Management Co. and Meritz Alternative Investment Management Co. -- are considering setting up blind pool funds for global investments.

Among other Korean investment companies, Mirae Asset Management Co. in 2015 launched a 450 billion won blind pool fund to invest in office buildings in Germany and logistics centers in the US. In 2017, KTB Asset Management Co. raised 120 billion won in a blind pool fund to target US office buildings.

"Through various project investments we have made, we built experience with established foreign partners and learned their investment methods," said a Mastern Investment source.

"Blind pool funds, led by South Korean asset management firms, will be able to set up investment guidelines tailored to meet the needs of Korean investors, which will make it comfortable for domestic insurance companies sensitive to a liability risk to invest in overseas real estate."

He referred to the 2023 introduction of a new global accounting standard for insurance companies, under which liabilities will be booked at market prices.

Write to A-young Yoon and Jin-seong Kim at youngmoney@hankyung.com
Yeonhee Kim edietd this article.