Friday, March 5, 2010

Interview: Ms. Regina Lee, General Manager, Shinhan BNP Paribas Asset Management

Shinhan BNP Paribas Asset Management, headquartered in Seoul, is a joint venture between Shinhan Financial Group and the French financial group, BNP Paribas. It is the fruit of an eight-year-old partnership between one of the three largest Korean financial groups and the largest euro-zone bank by assets.

In January 2009, Shinhan BNP Paribas Asset Management was created when Shinhan BNP Paribas Investment Trust Management and SH Asset Management merged. Shinhan BNP Paribas Investment Trust Management was created in 1996 as Shinhan Investment Trust Management and in 2002 the name changed to Shinhan BNP Paribas when BNP Paribas acquired a 50% stake.
As noted by Ms. Regina Lee, General Manager, Real Estate Investment Team, the joint venture is currently ranked third in the Korean asset management market which is crowded with over 60 players, and has 34 trillion won worth of assets under management.
She pointed out that the Shinhan Financial Group Co. Ltd. was incorporated on September 1, 2001, and is Korea's first financial holding company that delivers comprehensive financial solutions through a powerful One-Portal network. Its subsidiaries offer quality financial products and services in commercial banking, corporate banking, credit card, private banking, asset management, investment banking, brokerage and insurance service.
The company has 21 offices in nine countries, including the U.S., the U.K., Japan, China, Germany, India, Hong Kong, Vietnam and Singapore. Currently, Shinhan Financial Group is listed on both the Korea Stock Exchange and the New York Stock Exchange
BNP Paribas is a European leader in global banking and financial services and is one of the 4 strongest banks in the world according to Standard & Poor's. The group is present in over 85 countries, with more than 168,000 employees. The group holds key positions in three major segments: Corporate and Investment Banking, Asset Management & Services and Retail Banking. Present throughout Europe in all of its business lines, the bank's two domestic markets in retail banking are France and Italy. BNP Paribas also has a significant presence in the United States and strong positions in Asia and the emerging markets.
“Both BNP Paribas Group and Shinhan group are trying to create synergies, so we are transferring capabilities between us. The special assets division of this company invests not just in real estate but also infrastructure and is engaged in investment finance,” she said.
Regarding real estate assets, she noted that the company owns around 1.005 trillion worth of real estate assets and ranks number 2 in terms of real estate assets alone.
“Our company started the real estate investment business back in 2006. Since 2007 we have recorded an average growth of more than 100 percent. Over the last two years the market has been quite stagnant but we were still able successfully acquire 300 billion worth assets this year and seek to increase asset size by 2 trillion won by 2012, to become the number one in the industry.”
The investments made by the company have been in prime grade A office buildings. Being very competitive assets, one can expect high capital gains and steady returns averaging 8 percent, she said.
Speaking on the strengths of the company she noted that the assets under management not just combination of number and figures but these are assets where the life stories of customers are embedded.
“We try to keep that core value in mind whenever we do our business. Many deals are concluded upon cooperation of many market participants as well as many stakeholders. So I think there should be no problem in closing deals if there is cooperation among the various participants. All the parties have different interest in mind but if they all cooperate it will be for the good. Successful deals require good people and good teams, both internal as well as external,” she said.
As for the real estate market in Korea she noted that last year was not very good, given the global economic meltdown. However, the market picked up in the second half, driven by Korea’s economic performance. This is different from other countries in the world.
One important differentiating trend in Korea is that the real estate market is driven by two segments- asset market and leasing market.
“Asset prices have increased steadily and this is because there are not many qualified tradable assets in the market. This year the decoupling between the leasing market and asset market is likely to continue for the time being.”
Negative factors in leasing market such as decline in leasing prices could also continue for the time being. In the mid to long term, this kind of trend is limited. It is not going to continue for long period of time, she said.
Ms. Lee said that the decoupling trend between the two markets is attributable to two factors. First is intensified competition from increase in market participants and second is increase in strategic investors who have relatively smaller expected returns.
Last year 20 players such as asset custodians entered the market this helped intensify the competition in the market. Assets prices were driven by such stiff competition in the process. This could result in formation of assets prices that do not fully reflect the true value of assets.
“As I said earlier the asset prices were also driven by increase in strategic investors, but this type of trend should only be limited to high quality assets. This year the financial market appears to be conservative to real estate market, so this year I think it should be an increase in distressed projects.” This is because of decrease in funding sources and deterioration in asset values, delays in projects and increase in capital costs , uncertainties in leasing market (construction may be cancelled etc.) Increased needs to find financial needs for this kind of distressed assets offers good investment opportunities if we can design a good deal structure and find strong deals. Market competition is going to get fiercer but this should only be limited to the primary business of buying and selling assets so there should be some changes in the industry, she said.
Another characteristic trend, she noted is that the real estate market has to businesses-Primary business of buying and selling real estate space and the secondary business of adding value to these spaces. She expects to find new business opportunities in the secondary business.
“So I would like to personally refer to this as a shift from the primary to secondary business in the real estate industry. Until now market participants were engaged in competition in the primary business, but in the future we should increase competitiveness in the secondary business of real estate. We cannot call it as the main trend but it should be,” Ms. Lee said.
Until now office buildings took the majority of real estate investment because the infrastructure was in place. Not just investment itself but also the services that manage the investment. If the shift from primary to secondary does occur then the investment which focused on residential and office buildings should now shift to industrial buildings. Value can be generated from services that can arise from these real estate assets, she noted.
Comparing Korean real estate market with other countries in the region she noted that every real estate market depends on the industries that are developed in the country. So if we talk about real estate of certain countries we should look at industries of that region first.
“The Japanese market over the last ten years has seen the bubble bursting and industries suffer from deterioration of competitiveness. The real estate market can only move in tandem with industry of that country. So the Japanese market may have some weaknesses. The demographic terms the country’s competitiveness also deteriorated as well. However due to economic strength of Japan there should be steady demand for high quality assets.”
She also noted that a lot of investors are interested in Chinese and Indian market and a lot of studies are going on about their growth potential. But when it comes to making investment decisions one should have a look at the infrastructure in these countries.
The Korean market has become open to foreign investment over the past ten years and has sufficient infrastructure for real estate business. The industries are growing in competitiveness, so the Korean market can be a good platform for investors who want to invest in emerging markets. Moroever there is a very low vacancy rate over past ten years and the leasing fee has not changed substantially.
Although last year, many foreign investors disposed a lot of assets for liquidity, this year they will return, she predicted