Government Fund Weekly News Roundup — Global Real Estate Attracts SWF Capital

November 13, 2015 by Loch Adamson

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Sovereign wealth funds’ appetite for real estate continues, as the Qatar Investment Authority and China Investment Corp. line up big property deals. The Kuwait Investment Authority eyes new private equity investments in Russia and U.S. Meanwhile, Korea’s National Pension Service loses two top executives.

Residential Real Estate

Government funds continue to plow capital into global real estate. This week a joint venture between the Qatar Investment Authority (QIA) and the Ascott, a unit of Singapore-based property developer CapitaLand, made its first investments. The venture acquired Somerset Shinagawa Tokyo, an apartment building in the Japanese capital, and an office property in Paris that the partners plan to redevelop into a serviced-residence complex.

The venture bought the two assets for a combined $104 million, and will spend a further $43 million to redevelop the Parisian property, which will re-open under the Ascott's Citadines brand in 2018. QIA’s peer, Singapore’s $194 billion state investor Temasek Holdings, also has an interest in the deal; Temasek is a part-owner of CapitaLand.

Rising prices on mature real estate assets have led some funds to turn their attention to brownfield sites, where they can acquire properties at a lower price in return for taking on some development risk. The $747 billion China Investment Corp. (CIC), for example, is reportedly in talks with Australian commercial real estate developer Goodman Group to buy a brownfield site in Sydney for A$660 million ($465 million). The land, which currently lies in an industrial district of the city, has been earmarked for a residential development by the New South Wales government.

Norway Wants to Triple Property Allocation

As its government peers expand their real estate portfolios, Norway’s fund aims to follow suit. Norges Bank Investment Management (NBIM), the arm of the central bank that oversees Norway’s $830 billion Government Pension Fund Global (GPFG), currently allocates 3 percent of GPFG’s portfolio to property, and is targeting an allocation of 5 percent, the maximum it is allowed to invest in real estate.

Now NBIM has published research suggesting that the optimal real estate portfolio for a large institutional investor is 15 percent. NBIM will have to win government approval to upsize its real-estate holdings.

KIA Eyes Private Equity Deals in Russia, U.S.

According to media reports last month, the Kuwait Investment Authority (KIA) may have to sell approximately 9 billion dinars ($30 billion) worth of assets to help the Kuwaiti government finance a budget deficit. But that hasn’t stopped the $592 billion sovereign wealth fund from eyeing new investments overseas.

This week KIA agreed to allocate an additional $500 million to its co-investment arrangement with state-owned private equity firm the Russian Direct Investment Fund (RDIF). KIA became RDIF's first international partner in 2012, when the Kuwaiti fund agreed to allocate an initial $500 million to co-investments in Russia. As well as doubling the size of its commitment, KIA has also agreed to increase its share in RDIF's automatic co-investment mechanism, through which KIA automatically participates in RDIF's ongoing investment projects.

KIA has also invested in the latest fundraising of Dubai-based car-service provider Careem through its subsidiary, Impulse. Careem operates a smartphone app that arranges car rides between passengers and registered drivers operating in 20 cities from Morocco to Pakistan.

Governance Shake-Up at Korea’s Government Funds

Korea's $446 billion National Pension Service (NPS) is set to lose two of its senior executives. Choi Kwang, the fund's chairman and CEO, reportedly resigned at the end of October, while CIO Hong Wan-Sun's two-year term expired last week. Hong will remain in his post until NPS appoints a successor. Reports in the local press suggested Choi's and Hong's departures were prompted by their disagreements over the fund's organizational structure. The news comes shortly after Hongchul (Hank) Ahn, chairman and CEO of the $85 billion Korea Investment Corp., announced his resignation last week.

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