Slow capital calls may ‘not be able to satisfy’ POBA’s allocation targets

The South Korean public pension fund has increased its AUM exposure to the asset class from 5% to nearly 7% during 2018.

Despite its growing exposure to the infrastructure asset class, South Korea’s Public Official Benefit Association has expressed frustration over the slow pace of capital deployment from some of its GPs.

“Capital calls are quite gradual, and they might not be able to satisfy our asset allocation objectives,” POBA’s chief investment officer Jang Dong-Hun told Infrastructure Investor.

POBA has increased its AUM exposure to infrastructure assets from 5 to “slightly less” than 7 percent during 2018 and is “on track” to achieve its allocation target of 10 percent of AUM within the next five years, Jang said, despite the slow deployment. POBA’s AUM currently stands at 11.7 trillion South Korean won ($11.9 billion; €9.2 billion).

But he also stressed that the pension fund will be looking for more co-investment opportunities to quickly boost its exposure to the asset class. “This kind of direct and immediate deployment strategy has helped us to increase our infrastructure asset allocation objective. We would like to increase this kind of investment,” he said.

According to Jang, the main challenge is finding investment opportunities at the right price, which is why POBA is focused on “co-investment opportunities” on “niche and regional” regulated infrastructure investments. “These areas are not that competitive and generate decent returns for us,” he said, but declined to provide further details.

In April, POBA partnered with an undisclosed Californian public pension fund to create a $400 million joint venture focused on US real estate senior private debt, and has expressed interest in finding other partners to pursue similar investments in the infrastructure space. POBA has not yet found the right partner, Jang said.

The pension fund has said it has allocated more than $1 billion to more than 20 infrastructure-focused blind pool funds. According to Infrastructure Investor data, those funds include Macquarie Infrastructure Partners IV, Partners Group Global Infrastructure 2015, Brookfield Infrastructure Fund III, KB Fengate North America Infrastructure Fund I and Korea Infrastructure Fund 2.

Jang described POBA as a “conservative” investor, interested in infrastructure assets in strongly regulated sectors in OECD countries and with “very little downside risk”, that provide 5 percent returns.