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Overseas infra funds draw institutional invest of $5 bn from Jan to June

Unconventional infrastructure such as 5G, logistics and new energy is gaining increasing attention from Korean institutions as they look eagerly overseas for investment returns in low interest and risk environment from virus pandemic.

According to the Korea Financial Investment Association on Sunday, balance in funds investing in non-property assets like roads, logistics centers and power plants mostly in advanced nations surged 1.8 trillion won ($1.5 billion) over the past month, growing at the fastest pace this year.

The gain boosted the entire investments in overseas PEFs to 3.27 trillion won in June, helping them recover to the pre-pandemic level of 3.4 trillion won in February.

Investments in foreign infra funds have been in surge over the past two years, from around 4 trillion won in 2016 to 2017 to 10 trillion won in 2018 and 19 trillion won in 2019. The outstanding balance in the funds reached 52 trillion won as of the end of June this year, with money inflow in the funds amounting to 6.12 trillion won from January to June. They are rapidly catching up with overseas real estate funds that saw an inflow of just 3 trillion won over the last six months to 55 trillion won.

Investments in foreign PEFs mostly went to commercial properties and securities backed by account receivables until last year, but the money has currently turned to infra assets as the real estate market is losing steam due to the pandemic and the recent series of repayment delays of funds have eroded investor confidence.

“Investments in overseas infrastructure have been growing recently, and most of them go to renewable energy facilities in Europe and 5G network related facilities such as data centers in the U.S.,” Kim Hyung-yoon, an analyst from KB Asset Management said.

Infrastructure funds are mostly closed-ended funds with a long maturity of up to 30 years and deliver returns in single digit. They are mostly inaccessible to retail investors. Average rate of returns of infra funds investing in loans stand at 4 to 5 percent and in direct assets at 7 to 8 percent. “Retail demand could emerge if investments in infra funds continue to increase,” said Kim.

By Moon Ga-young and Choi Mira

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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