II Seoul: Lotte weighs up infra debt commitment to BlackRock, Schroders

The Korean insurer says debt is generally preferable to equity investments and a lack of face-to-face due diligence makes commitments to GPs unlikely without an existing relationship.

Korean insurance giant Lotte Insurance is considering infrastructure debt commitments with BlackRock or Schroders, the Infrastructure Investor Seoul Summit has heard.

Lotte Insurance managing director and financial investment group head Janghwan Lee said the firm’s risk team was more comfortable making commitments to GPs like BlackRock that it already knows, as coronavirus travel restrictions had made face-to-face due diligence on new GPs and funds impossible.

“Because of travel restrictions, it’s a little bit hard to convince investment committee members [about] new GPs – we feel more comfortable working with GPs that we already know. This is the reality,” he said.

Lee added that he had tried to convince his risk team to make a commitment to a new distressed strategy but had been unsuccessful.

“I had a video conference call with [a fund manager] which has a reputation for distressed strategies. I tried to put our capital into its new fund, but our risk team members felt uncomfortable with that, so I gave up. Instead of that, my plan is to [use] GPs we already know such as BlackRock. Those GPs are more comfortable to risk team members,” he said.

Lotte Insurance has around $15 billion in assets under management, with around 15 percent of that invested in infrastructure. The infrastructure portfolio is split roughly equally between renewable energy, power plants, and railways and ports.

Lee said the portfolio is “underweight” and that the insurance firm had tried to invest more into infrastructure this year but had struggled due to the inability to conduct overseas due diligence during the coronavirus pandemic.

Infrastructure debt was more attractive than equity in many cases because of the regulatory requirements placed on Korean insurance firms, but that it would still consider certain types of equity investments.

“In the case of availability PPP projects, they can provide good risk-adjusted returns … the expected return of equity for an availability PPP project is around 6-7 percent – so in terms of risk-adjusted return, it’s very attractive,” he said.