2010AWARDS & AnnuAL REVIEW - PERE

toP stories | AsiA
Seoul searching
excerpts from the 10 most-read stories for Asia show that Korea was a hotbed
of activity, not least due to the sheer volume of investment equity to emanate
from the east Asian country
1Korea: saviour of opportunity
funds?
the national Pension service of Korea
revealed it was planning to make up
to eight commitments of $150 million each to
value-added and opportunity funds in 2011
The world’s largest LPs have
been saying for a couple of
years now that they are shunning
higher risk funds in favour
of more core investments
and less blind alternatives. As
such, it was fairly predictable
that December’s news of the
National Pension Service of
Korea’s (NPS) investment plan
for 2011 would grab the attention
of value-added and opportunity
fund managers around
Kang: ascending the risk curve the globe.
NPS determined at the tail
end of last year to make up to eight $150 million commitments
into opportunistic strategies, the majority of which were to be
made in Q1 this year. The decision to ascend the risk-curve
followed more than a year of the $270 billion sovereign wealth
fund committing equity to core strategies focused on major
cities. Via separate accounts awarded to managers such as
Rockspring Property Investment Managers, Prudential Financial’s
Pramerica Real Estate Investors and Cleveland-based
The Townsend Group, it appears NPS has parked enough capital
in low-risk deals, for now.
NPS’ real estate head, Andie Kang, told PERE: “I like real
opportunity funds, not those run by the financial engineers
but by those who understand real estate and how to add value.”
There are some caveats to the intended commitments,
namely geographical. Overweight in Europe after making a
number of large outlays over the past 18 months, including
the £772 million purchase of HSBC Tower in London’s Canary
Wharf and the €570 million acquisition of the Sony Center
in Berlin, NPS will seek to make more than 50 percent of the
commitments to North and South America and Asia. Additionally,
between 40 percent and 50 percent will be devoted to
debt strategies.
NPS may well be a forerunner of what is to come. Commentators
increasingly are suggesting the world’s core markets are
becoming saturated with equity-rich investors seeking safe
56 PERE | 2010 AwArds & AnnuAl review
investments. With yields being pushed down in many cities
to unattractive lows, perhaps other large LPs will follow in the
sovereign wealth fund’s footsteps.
2BoA Merrill Lynch agrees
to $650m LP settlement
investors in its Asian real estate
opportunities Fund received a large
settlement from the wall street bank and, in the
process, struck a blow for lP rights
The private equity real estate community can seem like a
bubble sometimes, with the wider financial world an afterthought.
However, that certainly was not the view of Bank
of America Merrill Lynch (BoA ML) when it opted to pay
the LPs of its Asian Real Estate Opportunities Fund a settlement
valued at $650 million after the 25-strong investor pool
threatened litigation.
At the heart of the grievance were actions taken by the bank
considered non-fiduciary. More specifically, they included an
ill-timed foreign exchange trade and a poorly executed series
of valuations of assets transferred from BoA ML’s balance
sheet into the fund when it was launched. An admission of
wrong-doing was in order, but the Wall Street bank definitely
had one eye on future relationships with its investors, which
included the Abu Dhabi Investment Council, French insurer
AXA and the General Electric Pension Trust, when making
the offer in August. It was unanimously approved at a meeting
in Hong Kong three months later.
For the LPs, the money wasn’t the only incentive for settling.
The agreement included removing BoA ML from its
general partner and asset management responsibilities and
replacing it with New York giant The Blackstone Group. Already
a potent force in the US and Europe, Blackstone was
able to plug a personnel gap in its Asia real estate team, inheriting
more than 60 staff. The firm’s preference was to keep the
asset management contingent of that team, about 25 people,
to add to its existing roster of 15 as it worked through a mandate
of managing out the fund.
Even better for Blackstone, the firm came into the fray with
less expectation to deliver stellar performances from the vehicle
than its predecessor. Indeed, one insider said it could
barely be expected to return much more than 70 cents on every
dollar invested.
The settlement represented the first major example of an LP
revolution bearing serious fruit. Whether it stimulated other