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North Asian LPs on the march(1)

Investors from Japan, Korea and China are climbing up the learning curve, and they are doing it fast. Where are we likely to find Asia’s rising stars in 2017?

Here at last. While their familiarity with infrastructure varies across the region, North Asian LPs, which look after some of the world's largest capital pools, have their sights trained on the asset class. 

Korean institutions seem to be spearheading the move. Financial institutions from the peninsula, which had been investing in domestic infrastructure since the 1990s, have recently started scouting overseas markets for large-scale core assets. They will probably continue.

Several of the largest Korean institutional investors, including public pensions and insurance companies, have said they will increase their allocations to offshore infrastructure in 2017. And a majority of them see the US and renewable energy as the most attractive region and sector respectively, according to a survey of 20 chief investment officers by The Korea Economic Daily. 

The biggest one among all, the National Pension Service of Korea, looks up to its Canadian and Dutch peers and says the direct investment model is where it aims to be in the long run. The pension is building in-house investment teams in three overseas offices in a bid to gain a greater foothold in alternatives, including infrastructure. Next year may see it try to consolidate this expansion. 

Investors from Korea and its North Asian neighbours also have a strong interest in co-investments, despite being relatively new to overseas infrastructure markets, according to Kerry Ching, a managing director at AMP Capital.   

Japan's “big four” public pensions – the Pension Fund Association for Local Government Officials (Chikyoren), Japan Post, the Government Pension Investment Fund and the Pension Fund Association – have reportedly been looking to gain more exposure to alternative assets, including infrastructure. Their appetite for alternatives, driven by global volatility and Japan's negative interest rate policy, is underpinned by their will to secure better returns. 

This July, Chikyoren awarded its first-ever infrastructure mandate to JP Morgan Asset Management, while GPIF sought to enlarge its in-house infrastructure team, following its partnership in 2014 with OMERS and the Development Bank of Japan for co-investing in overseas assets. 

While Japanese life insurers – including the industry's two biggest players, Nippon Life and Dai-chi Life – have been investing in infrastructure for a few years already, pension funds are trying to follow suit by learning more about the asset class. 

But the most visible buyers of assets this year have come from elsewhere: China, with a handful of state-owned companies going on a worldwide shopping spree. The move has in recent years been accelerated by the promotion of the “going out” policies and “One Belt One Road” initiative. 

Neither are financial investors from the world's second-largest economy missing out on the game. China Life, for example, recently went direct by agreeing to invest in a 2,229km gas pipeline network owned by Chinese oil refiner Sinopec, a deal valued at $3 billion. Ping An, another major Chinese insurer, teamed up with Australian alternatives investor QIC to try and source alternative investments in both China and overseas markets. 

Such moves are supported by China's official policies, with the government looking to channel institutional money into infrastructure to support the country's economy. Recent regulatory changes, for instance, have allowed insurance companies to invest in “riskier” domestic PPP projects. 

A market participant Infrastructure Investor spoke to for this article expected that China's financial institutions, particularly the likes of Ping An and An Bang, would climb up the learning curve at a faster pace than most institutional investors across the globe. This group of investors, our source said, would soon move beyond fund commitments to try and carve a space in the direct infrastructure market for themselves.