Government Fund Round-Up — SWFs Kick Off 2016 With Big Real Estate Deals

January 08, 2016 by Loch Adamson

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Potsdamer Platz

Potsdamer Platz in Berlin. Photograph: Alexander Rentsch

From Europe to the U.S., sovereign wealth funds closed a flurry of real estate deals in late December and early January. Pension funds in Japan and Korea rejigged their governance structures. And Hong Kong launched a new $28 billion savings fund.

SWFs’ Property Bonanza Continues

New year, familiar trend. Sovereign wealth and pension funds began 2016 in much the same way as they spent 2015 — by pouring billions into global real estate assets. Their latest focus? The U.S. student—accommodation market, which is booming as increasing numbers of international students seek degrees from American universities.

On January 4, the $215 billion Canada Pension Plan Investment Board (CPPIB) and Singapore’s $343 billion GIC announced they had formed a joint venture with Chicago-based real estate firm Scion Group to buy a portfolio of student residences across the U.S. The cost? Approximately $1.4 billion. CPPIB, GIC and Scion agreed to purchase the 18 student-housing assets from Dallas-based University House Communities Group. CPPIB and GIC will each own a 47.5 percent stake in the new venture; Scion will take the remaining 5 percent.

In Europe, sovereign wealth funds continued to plow money into prime real estate in capital cities. This week Brookfield Property Partners, a unit of Toronto-based Brookfield Asset Management teamed up with an unnamed Asian sovereign wealth fund — probably the $84.7 billion Korea Investment Corp. (KIC) — to purchase a real estate portfolio located at Potsdamer Platz in Berlin for €1.3 billion ($1.4 billion). The Potsdamer Platz development, which stands on land once cleaved by the Berlin Wall, features offices, residential units and recreational spaces, including hotels, cinemas and a shopping center.

Sovereign funds are also arranging big property deals in Italy with the help of Coima SGR, a real estate investment firm backed by the $334 billion Qatar Investment Authority (QIA). The $35 billion State Oil Fund of the Republic of Azerbaijan (SOFAZ) has bought Palazzo Turati, an office building in the center of Milan leased by the Italian Chamber of Commerce, for €97 million; Coima will manage the property. Coima also announced its purchase of another office building in Milan, reportedly on behalf of the $621 billion Abu Dhabi Investment Authority (ADIA). In December, Coima and QIA purchased the historic Italian headquarters of French financial group BNP Paribas on the Piazza San Fedele, in the center of the city.

Hong Kong’s New Future Fund

The New Year saw the launch of a major new sovereign wealth fund. On January 1, Hong Kong formally established the Future Fund, a vehicle for intergenerational savings, using HK$219.7 billion ($28.3 billion) in start-up capital transferred from the Land Fund Trust, an older fund that collected revenue from sales of state-owned properties.

For a period of ten years, the Future Fund's assets will be managed by the Hong Kong Monetary Authority (HKMA), which already invests a portion of the territory’s foreign exchange reserves with the aim of building long-term savings. HKMA will invest half of the fund's capital — approximately HK$109.8 billion — in private equity and real estate as part of its so—called Long-Term Growth Portfolio, which targets alternative assets. The bank will place the remaining 50 percent of the fund's capital in its Investment Portfolio, which focuses on bonds and equities.

Governance Reshuffles in Japan and South Korea

Japan’s gigantic Government Pension Investment Fund (GPIF) could be set for an overhaul of its governance structure. The Ministry of Health, Labor and Welfare has proposed that a new board of directors should oversee the fund. Under the current structure, a single individual, GPIF’s President Takahiro Mitani, has the final say on all major decisions concerning the $1.1 trillion fund. The ministry’s proposal is likely to be considered by the Japanese parliament later this year.

South Korea’s $446 billion National Pension Service (NPS), meanwhile, is in the midst of a major organizational reshuffle. NPS has reportedly appointed Moon Hyung-Pyo, the country's former minister of health and welfare, as its new chairman and CEO, although the fund is yet to make a formal announcement.

Moon replaces Choi Kwang, who resigned in October 2015. Reports in the local press attributed Choi's departure to a dispute with NPS CIO Hong Wan-Sun over the fund's organizational structure. Hong's own two-year contract expired in November, but he remains in his post as the fund searches for a new CIO. Lee Dong-ik, former CIO of KIC, is apparently among the leading candidates to succeed Hong.

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