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ASIAVIEW: Solo in Seoul

Are separate mandates, such as Rockspring’s appointment by The National Pension Service of Korea, another threat to blind pool funds? PERE magazine October 2009

As if blind pool discretionary fund investing hadn’t been knocked enough, news that the world’s fifth largest pension fund is mandating managers to invest directly as it seeks to capitalise on fallen prices in the world’s biggest cities, will only serve to further the notion that funds are not favoured.

The National Pension Service of Korea (NPS), a $200 billion organisation which had entrusted third-party managers to invest on its behalf before, has selected Rockspring Property Investment Managers to help realise its ambition of spending $3 billion on global real estate in 2009.

A closer examination of separate account investing reveals positives for sure, but investors might want to consider a few downsides too.

Rockspring has been mandated to help it source investments in London, one of four cities on its shopping list. The other three cities are Tokyo, Sydney and New York where decisions on partners and strategies are also being made.

According to Rockspring, with whom NPS has invested on a blind pool, discretionary basis before, the pension fund wants to move quickly buying up assets in mature markets which are currently subject to opportunistic prices as a result of the global economic downturn.

Its brief is to spend £150 million (€170 million; $248 million) or more on individual lot sizes. Such is the urgency that Rockspring can invest the capital even if lending conditions remain somewhat unfavourable.
Rockspring would not confirm that NPS was opting for one form of investing over another but the pension fund has already stated its desire to adopt more direct channels.

A closer examination of separate account investing reveals positives for sure, but investors might want to consider a few downsides too. 

It is certainly one of the fastest ways to buy properties. Typically, and in the case of NPS and Rockspring, the mandated manager is asked to locate and offer deals to the investor who then decides whether to proceed.

NPS’ approach is certainly a quicker route to property ownership than opening its own offices in London, Tokyo, Sydney and New York and staffing these with a talent cadre of professionals.

Some sources say London’s prime real estate, precisely what NPS wants Rockspring to buy, is experiencing a peak in investment yields, so time is certainly of the essence to act swiftly.

In addition, the separate account investor need not be concerned with the requirements or, indeed, health of its co-investors – something that has become a tripwire of late in certain blind pool structures.
If it does not want to invest in what it is being offered, it doesn’t invest.

While the en vogue club-style vehicles currently on display are aimed at like-minded investors, each has a say on proposed investments. In the nature of moving quickly, this has been labelled by some GPs as a potentially cumbersome method of investing, which could see them miss out on as many deals as they ensnare.

One GP said the cheapest deals come fast and that sellers want to talk to decision makers, not

Another argument against separate account investing is that the investor does not share in the risk of its investments with numerous partners as it would in the blind pool or club structure.

representatives of multiple decision makers.

Another argument against separate account investing is that the investor does not share in the risk of its investments with numerous partners as it would in the blind pool or club structure.

There are reputational and other risks associated with being the primary equity provider in very large deals. Sure, the investor which invests alone pockets all the upside, but when pursuing an opportunistic strategy, even in one of the world’s most mature markets, there is safety in numbers.

In addition, a separate account holder may want to make sure that the manager isn’t grabbing the best assets for the fund while shepherding the less desirable opportunities toward the big solo investor with lots of money and opinions to service.

And on the premise of speed, is the separate account, fast as it is, still not something of a middle ground between investing directly without sourcing partners and through an investment club full of decision makers?

This leads to the notion that perhaps the fastest format to capture deals is through, low and behold, a blind pool, discretionary partnership with platforms already established in every investible corner of the globe.
It is a debate that will not be resolved until several years of major separate account activity has been observed. Stay tuned.