Korea’s US$779 billion National Pension Service (NPS) has cemented its links with its favored US real estate partner Stockbridge Capital Group by buying a significant minority stake in the company, via a separate account investment program administered by Blue Owl, nearly three years after their US$2 billion logistics property deal. Stockbridge’s AUM totals US$33.7 billion with 607 assets.
In December 2020, Stockbridge and NPS teamed up with an additional undisclosed investor to acquire a portfolio of Class A logistics centers in the US with long-term leases to major e-commerce tenants. The deal came amid the pandemic, which saw a boom in e-commerce and corresponding strong growth in logistics. The deal was the second joint venture between the two since they acquired an 8.7 million-square-foot logistics facility in the US in November 2019.
The move comes as NPS looks to both stabilise and boost its return by investing in alternatives as well as its global portfolio. In June, it appointed investment bank Goldman Sachs and US real estate firm Bridge Industrial as overseas real estate investment managers, bringing its total number of overseas real estate managers to 63. This is part of a drive to raise alternatives exposures and increase investment return to 5.6% by end-2027, under the latest five-year asset allocation plan.
By end-June, the fund had KRW156.6 trillion (US$121 billion) in alternatives, of which KRW49.5 trillion (US$38 billion) was in real estate (86.5% in overseas markets), KRW65.0 trillion (US$50 billion) in private equity (78% overseas), and KRW39.4 trillion (US$30 billion) in infrastructure (79.0% overseas). It is targeting an allocation of 13.8% for alternatives by end-2023.
Demographic trends are working against the fund. Government statistics show that the working-age population was 71.7% of the wider population in 2021, but that share is expected to decline to 51.3% by 2050. Facing the prospect of receiving lower retirement benefits than their parents, younger people are pressing for the option to leave the pension programme altogether. The Yoon administration is seeking to extend the fund’s life, requiring improved yields. The performance in 2022 merely added impetus to NPS’s drive to diversify its portfolio.
The fund’s ability to deploy such large sums is constrained by its own workforce limitations. NPS has been struggling with talent attraction and retention since it moved its headquarters 200km south of Seoul, frustrating its target of doubling its staffing size to 500. While in-house capabilities are being developed, NPS’s planned growth will remain heavily reliant on external managers, particularly in foreign markets. By buying a stake in Stockbridge, NPS is looking to gain exposure to foreign real estate markets without relying heavily on its own personnel to do originate deals.
