South Korea-based investors have been actively increasing their overseas infrastructure investments; as the country’s economy matures, infrastructure opportunities in the domestic market have become scarce and thus competitive, forcing investors to diversify their geographic scope in search of higher yield. Early in 2018, Public Officials Benefit Association and a group of local insurers acquired a 20% stake in the UK-based operator of London Orbital Motorway, following other South Korean investors’ notable investments in the UK – namely High Speed 1 and a gas distribution network of National Grid.
Preqin’s online platform tracks 87 South Korea-based institutions investing or considering investment in infrastructure. Insurance companies account for the largest proportion (30%) of the pool, followed by banks (21%) and asset managers (16%). The proportion of asset managers has increased in recent years, in response to the rise of local LPs looking to access foreign infrastructure via an asset manager’s platform. In April 2018, Hyundai Investment Asset Management incorporated a domestic vehicle for South Korean investors to gain access to 3i European Operational Projects Fund. The fund invests in operational social infrastructure and transportation PPP projects across Europe, particularly within France, the Benelux region, Germany, Italy and Iberia.
On average, investors in South Korea allocate 8.1% of their total assets to infrastructure, up from 5.4% in June 2015. As shown in the chart above, it is evident that this growing allocation has been flowing into overseas markets, most notably North America. Despite being progressive regarding the markets they target, South Korea-based LPs have become more risk-averse in terms of their strategy focus: while the proportion of active investors equity has seen a slight decrease in the past three years from 88% to 84%, those that employ debt and mezzanine strategies has risen from 71% to 86%.
With investors’ rising assets under management unable to find sufficient opportunities in the local market, South Korea-based investors are emerging as a key investor group in the global infrastructure industry. Preqin’s Fund Searches and Mandates feature shows that South Korea-based investors are continuously seeking infrastructure opportunities for the coming 12 months. Debt and mezzanine remain the most favoured strategies among investors in South Korea, with 73% of the pool targeting such low-risk capital structures, a significantly larger proportion than primary strategies (45%). Also, due to the unfavourable dollar interest rate against the South Korean won, a larger proportion of investors are seeking assets in Europe as compared to North America (92% vs. 83% respectively) in the next 12 months. Hana Financial Investment is one example that plans to focus on Europe-focused debt and mezzanine funds in the coming year. Having made its maiden commitment in H1 2018 to Mirova Core Infrastructure Fund II, which targets brownfield infrastructure projects in Europe, the investment bank continues to form new relationships with fund managers focusing on Europe.