Leaning to Real Estate
Market watchers pointed out that big South Korean investors, including the National Pension Service (NPS), should be careful of the herd effect as they put most of their capital of overseas investment funds into real assets, such as real estate and special asset.
According to a report titled “Current Conditions and Features of Recent Overseas Investment Funds in Domestic Industry” released by the Korea Capital Market Institute on July 25, the amount of overseas investment funds stood at 109.8 trillion won (US$98.04 billion) as of the end of last month, accounting for 21.9 percent of the total funds in South Korea.
Its overseas investment funds increased by nearly 10 trillion won (US$8.93 billion) in two months after surpassing the 100 trillion won (US$89.29 billion) market in April this year. The amount of private equity funds reached 72.2 trillion won (US$64.49 billion), taking up 65.8 percent of the total foreign investment funds. The figure grew more than 24 trillion won (US$21.44 billion) from 47.5 trillion won (US$42.43 billion) from a year earlier when it accounted for 61.3 percent of the total. The portion of institutional investors in foreign private equity investment funds reached a whopping 96.1 percent.
In addition, the portion of funds that invest in real assets including property and special asset, stood at 54.8 percent, exceeding half of the total. As the overseas investment fund market grows bigger, more capital, mainly from institutional investors, is being concentrated into private equity and real estate and special assets.
In particular, the NPS made a 17.9 trillion won (US$15.99 billion) investment in real estate as of the first quarter of this year, accounting for 44.4 percent of the total overseas alternative investments of 40.4 trillion won (US$36.09 billion).
A senior researcher surnamed Park said, “For foreign investment funds investing in special assets, the portion of individual investors dropped more than 15 percent points from 17.8 percent in early 2012 to 2.5 percent at the end of May this year. The structure of the foreign investment fund market is increasingly based on institutional investors.”
On the other hand, overseas public offering investment funds are growing based on securities, such as stocks (36.3 percent) and re-indirect funds (18.7 percent). The portion of special assets was 6.4 percent, up 3 percent pints from the same period a year earlier, but it remained at a single digit.
Recently, sales in the overseas public offering investment fund market has been rapidly increasing due to tax exemptions which has taken effect from the end of February last year to the end of this year.
According to the Korea Financial Investment Association (KOFIA), the cumulative sales of non-taxable overseas stock investing funds amounted to 1.7 trillion won (US$1.52 billion), up 68.2 percent from 700 billion won (US$625.17 million) at the end of last year.
However, the portion of individual investors decreased 18.7 percent points from 84.5 percent in early 2012 to 65.8 percent at the end of May despite such benefits.
Park said, “Individual investors’ overseas alternative investments have continuously grown every year due to the basis of low interest and the figure will also keep increasing in the future in order to improve the rate of return and diversify investment risks. As there have been growing concerns over the excessive concentration into some real asset funds despite the qualitative growth, investors need to diversify investments.”