The National Pension Service (NPS) of Korea will make the first massive investment in infrastructure in Europe since the Brexit in June.
According to the financial investment industry on August 21, the NPS decided to invest 250 million euro in Macquarie European Infrastructure Fund 5 (MEIF5) through which Macquarie targets 2.6 billion euro in total. The NPS’s investment volume is a bet big enough to account for the half of the total investment Macquarie received from Korean organizations.
The remaining 300 billion won will come from the Military Mutual Aid Association, the Science and Technology Mutual Aid Association and the Yellow Umbrella Mutual Aid Association among others.
Korean institutional investors expect an earning rate of 7% to 9% through this investment.
The NPS decided to invest in the European area despite shocks of the Brexit as they judged that it is high time for them to invest in Europe’s core infrastructure assets. Although the Brexit is raising investors’ awareness of a possibility of drops in assets such as stocks, bonds and real estate, superannuated infrastructure in Europe is still an attractive investment target, according to industry watchers. As a matter of fact, recently the EU announced a 21 billion euro stimulus plan (Junker Plan) which invests in infrastructure construction projects in Europe.
MEIF5 that the NPS joined as an investor will make investment mainly in core infrastructure assets in the European area such as utilities, telecommunication and transportation infrastructure. Including four years of investment execution, MEIF5 will run for 12 years in total. It is attractive to the NPS which usually makes mid- to long-term investments.
The NPS’s investment in overseas infrastructure is playing a key role in enhancing the performances of fund management with earning rates higher than benchmarks even in the era of low growth and low interest rates. According to the NPS, the rate of return of its overseas infrastructure investment stood at 13.65% at the end of last year. The percentage was 8%p higher than the market return of 5.58%.
This is a contrast to the fact that the rates of return on overseas real estate investment and equity funds dropped 1.38%p and 4.37%p compared to benchmarks. The NPS’s rate of return of its overseas infrastructure investment (7.27%) compared to market return over the past three years since 2013 outweighed the rates of return on overseas real estate investment (3.88%) and equity funds (1.30%).
As the NPS made up its mind to dial up its overseas alternative investment which now accounts for 7% of total assets under management in order to raise its rate of return to 10% by 2021, the NPS will will further increase its overseas infrastructure investment from which the NPS can expect stable income from in the mid to long term,” said a representative of the pension and fund industry.