PFA, Denmark’s largest pension company and one of the largest pension administrators in Europe with DKK 576 billion (about $86 billion) in AUM has announced a joint venture with South Korea’s $11 billion Public Officials Benefit Association (POBA). The two funds will co-invest in European real estate.
A formal agreement is expected to be signed in December.
Speaking with Seoul media upon news of the venture, POBA CEO Gyeong-Ho Han said, “By cooperating with local pension funds which have a good understanding of local property market situations, we can reduce the risk of loss and invest in high-yielding, decent assets.”
He said that POBA planned to pursue direct co-investment opportunities in real estate and infrastructure with other European institutions, and had already approached Germany’s Allianz. The initiatives are part of a strategy to increase the Korean fund’s allocation to alternative investments such as private real estate and infrastructure from a current, reported 54% of total AUM.
Sectors in play
The PFA/POBA partnership will have a maximum investment of target of DKK 10 billion ($1.5 billion), targeting real estate sectors including residential, logistics, data center and self-storage properties.
According to figures obtained from Denmark-based asset management news source AMWatch.dk, PFA’s total real estate portfolio was valued at EUR 7.2 billion (around $8 billion), divided between Danish domestic investments and holdings in European core markets, the U.S., U.K. and Asia.
The new accord is the latest of several real estate co-investment ventures between PFA and Korean institutional funds. According to AMWatch.dk, PFA has previously invested jointly with South Korea’s National Pension Service and its sovereign wealth fund, Korean Investment Corporation.
Returns getting squeezed
Earlier this month, several Danish pension fund administrators warned of fallout on pension returns, due to a prolonged period of negative interest rates, which Denmark has had in place longer than any country in the world. Liability calculations for pension put in place under the European Insurance and Occupation Pensions Authority (EIOPA) compel funds to remain allocated to low-risk assets, increasing their liabilities in legacy, guaranteed-return policies.
The alarm was striking, as Denmark has long boasted one of the world’s best-managed pension systems, according to the Melbourne Mercer Global Pension Index, which ranks global pension funds based on indicators of funding adequacy, sustainability and integrity.
Denmark held the global top spot for six straight years until 2018, when it was narrowly bested by the Netherlands.
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