S.Korean military fund to make $73 mn commitment to real estate funds

The Military Mutual Aid Association (MMAA), a South Korean retirement fund, is stepping up efforts to diversify its investment portfolio with a 100 billion won ($73 million) commitment to blind funds for investment in real estate development projects – the organization’s first such commitment.

In a notice issued on Wednesday, the pension fund for Korean military service members announced that it has opened a public tender to select two asset managers to oversee new domestic real estate blind funds.

Applicants should be operating in the areas of real estate investment trusts (REITS), property funds, or real estate private equity funds for institutions.

The two asset management firms, which will be named by July following a proposal submission and oral evaluation process, will each receive up to 50 billion won in capital commitments, according to the MMAA.

Each property investment blind fund will be allowed to have at least 100 billion won, including 50 billion won from the MMAA, targeting development projects in key metropolitan areas, including Seoul and major provincial cities.

The investment mandate includes offices, logistics centers and residential buildings.

Fund tenures will be capped at eight years, with a potential three-year extension. The investment period must conclude within two years from its inception, with a possible one-year extension.

Performance fees will be set at no more than 15% of profits exceeding a hurdle rate of 12% internal rate of return (IRR).

MOVE AIMED AT BALANCING INVESTMENT RISK

The latest initiative underscores the MMAA’s strategy to position itself as an active player in Korea’s growing institutional property market, while seeking to balance investment risk.

While the MMAA has backed blind funds through its financial investment division, which focuses on corporate finance, securities and credit strategies, the latest move marks the first time for its construction investment division to launch such a fund. The construction team traditionally focuses on real estate and infrastructure investments.

The move comes amid a broader push by the MMAA to secure stable sources of long-term returns following a major expansion in its membership base.

Last July, the association extended eligibility from non-commissioned officers and commissioned personnel to enlisted soldiers and defense-related groups, significantly increasing its managed capital base.

With fund inflows expected to rise steadily, the MMAA is accelerating its deployment into alternative assets.

As of the end of 2024, the military retirement fund’s alternative investments accounted for 75.4% of its total investment assets, with real estate assets taking up 36.2%.

Write to Gyeong-Jin Min at min@hankyung.com

In-Soo Nam edited this article.