Korean Teachers’ Credit Union, with about $19 billion in assets, will boost real estate and other alternative investments abroad to a record this year to benefit from a U.S. economic recovery and lower prices in Europe.
The credit union, also known as KTCU, is in talks to invest in Worldwide Plaza in New York as part of a group that includes other Korean investors, Chief Executive Officer Kim Junggi said on March 21. KTCU plans to provide about 100 billion won ($90 million) to the deal of the U.S. property that may be valued at more than $1 billion, he said, adding that talks will probably be completed by the end of April.
State funds from Asia, including the National Pension Service of Korea, are boosting their proportion of investments in real estate and looking overseas for higher yields amid slower growth in the region. Prices of U.S. commercial property are expected to climb in the next six months, extending a rebound that has sent values close to levels reached at the market’s peak in 2007, according to Green Street Advisors Inc.
“We’re seeing green shoots in the U.S. economy, which will fare better next year,” Kim, 57, said in an interview in Seoul after he visited New York earlier this month to discuss the Worldwide Plaza deal. “We’re optimistic about the U.S. real estate market. With the limited supply in prime offices in Manhattan, the investment will give us quite stable cash flow.”
The 42-year-old welfare agency for about 620,000 teachers and school employees had 20.7 trillion won ($19 billion) in total assets as of December and predicts they will increase to about 30 trillion won by 2017.
KTCU, based in Seoul, will spend about 360 billion won this year on alternative assets overseas, including properties, infrastructure and renewable energy projects.
“There is a funding gap in Europe due to the region’s sovereign debt crisis and it provides more opportunities for Asian investors like us,” said Kim, who added that KTCU is looking at several London office assets he didn’t identify. “As asset prices declined quite a lot, we’ll keep looking into targets in the region.”
The credit union can invest directly or through property funds, he said.
Last year it put 50 billion won in Vintners Place in London as part of a purchase with Downtown Properties Inc., an affiliate of Hong Kong-based fund manager Gaw Capital Partners. It also paid 60 billion won for a stake in Rochavera Corporate Towers in Sao Paulo.
KTCU is considering investing in Japan as the yen weakens and the economy begins to recover, the CEO said. No specific deal is under way, he said.
“There might be some opportunities in Japan with the softer yen and the economic recovery signal, and we’re looking into the market with interest,” Kim said. “We will tap everything that promises us fat returns.”
Japan’s Prime Minister Shinzo Abe has pledged to use monetary easing and fiscal stimulus to lift the nation out of more than a decade of declining prices. He has pushed the central bank to be more aggressive in combating deflation in the world’s third-largest economy.
The yen has dropped more than 8 percent against the dollar this year.
KTCU, which had an investment return of 6.5 percent last year, forecasts a 5.8 percent return this year because of a decline in the value of fixed-income assets and fluctuations in equity markets, the CEO said.
The agency will cut its bond holdings to 24 percent of total assets from 30 percent last year because the fund can’t endure declines in bond yields, Kim said. In the longer term, it will buy more emerging countries’ treasury notes, he said, without identifying nations.
“Our big push this year is overseas and in alternative investments,” Kim said. “Equity markets are too volatile, bond-market profits are squeezed and the domestic market is too small. We have to go overseas to survive.”