Korean institutional investors eye more foreign infrastructure assets

South Korean institutional investors are looking to increase their exposure to foreign alternative assets and diversify in terms of asset classes and destinations.

This comes as more institutional investors here are venturing into asset classes that could stimulate post-pandemic recovery and a sustainable future, in their bid to achieve medium-risk, long-term investing through illiquid assets, according to a note to investors by KTB Investment & Securities on Wednesday.

For example, the National Pension Service seeks to increase its exposure to global infrastructure to 39 trillion won ($34.5 billion) by 2025, from its current 25 trillion won, based on the belief that renewable energy and digital infrastructure will contribute to the post-COVID-19 recovery.

The Korea Teachers’ Pension, another Korean pension scheme, has pledged to increase its weighting on foreign alternative assets from 10 percent to 25 percent by 2025. A third of the 3 trillion won committed to foreign alternative assets so far has gone to infrastructure assets.

“Major institutional investors in Korea are looking to increase their size and weighting on foreign alternative assets,” Ra Jin-sung, an analyst at KTB Investment and Securities, wrote in a note Wednesday.

This stems from a growing appetite for Korean institutional investors to allocate more capital to green and digital infrastructure, such as logistics warehouses or data centers, he added.

“Korean investors are aggressively betting on digital infrastructure assets and assets associated with environmental, social and governance factors, but doubts about distressed assets still outweigh confidence,” Ra said.

In the meantime, Korean institutional investors’ appetite for risk has grown as they explore further afield potentially to second-tier destinations or target asset classes that are new to Korea’s investing scene, according to the report.

The National Pension Service has vowed to pursue a build-to-core strategy, which involves greater risk than defensive core strategies. It also deployed capital for its exposure to timberland and life sciences real estate earlier this year, for the first time in its history.

The Public Officials Benefit Association also pledged to eye more noncore logistics centers, life sciences facilities and data centers in Europe and Asia this year. In the United States, the association will keep close tabs on Sun Belt destinations such as Phoenix, Arizona, and Nashville, Tennessee, to avert the price competition unfolding in traditionally high-demand cities such as New York and Seattle.

By Son Ji-hyoung (consnow@heraldcorp.com)