Interview: Ms. Sandra A. Urie, Chairman & CEO, Cambridge Associates

Cambridge Associates is a privately held independent consulting firm that provides investment consulting and oversight services to more than 900 clients worldwide. The company strives to help global institutional investors and private clients meet or exceed their investment objectives by offering proactive, unbiased advice grounded in intensive and independent research.
In this interview, Ms. Sandra A. Urie, Cambridge Associates’ Chairman and Chief Executive Officer tells us more.

Could you give us a brief background about your organization?
Cambridge Associates was formed in 1973. The concept for our firm grew out of work done for Harvard University by our two founders, James Bailey and Hunter Lewis, who are still involved in overseeing the firm today.
Over our nearly forty years in business C|A has expanded into a global investment consultancy. Our mission has remained constant: we strive to help institutions and private investors around the world meet or exceed their investment objectives by providing proactive, unbiased advice grounded in intensive and independent research.
Cambridge Associates currently has over 1,000 employees based in London, Singapore, Sydney, Arlington, Boston, Dallas, and Menlo Park, with an office to be opened in Beijing in the summer of 2011. Our professionals are dedicated to serving over 900 clients globally including colleges and universities, charitable foundations, medical institutions, museums, Sovereign Wealth Funds and other government agencies, pension funds and families. Our clients represent aggregate assets of more than US$2.5 trillion.
Our only line of business is investment consulting and its supporting functions (i.e., research and performance measurement). One-hundred percent of our revenues are derived from providing these services to our clients, the owners of the assets we advise.
• Investment Consulting: Consulting is our core business, and we advise clients on a broad range of investment issues such as portfolio strategy and policy, asset allocation, manager selection, and performance evaluation across all asset classes, including alternatives (hedge funds, private equity and private hard assets). In addition, currency hedging has been a key issue in many countries where we have clients, including Korea. We also have significant experience in providing advice on investment operations, corporate governance, risk management, and best practices in institutional investing. These are all topics that should be of interest to Korean institutional investors as they contribute to superior investment returns.
• Research: Our high-quality, independent investment and capital markets research provides the foundation for all client recommendations. We currently have more than 190 research professionals working across four continents, bringing a global perspective to our work. Our research efforts are supported by our proprietary manager database, which currently tracks over 7,000 managers and 22,200 funds across all asset classes and geographical regions. This means our clients have access to a large and global opportunity set when considering implementation strategies for their portfolios.
• Performance Measurement and Reporting: As part of the consulting relationship with our clients, we undertake performance monitoring for both marketable (e.g. public equities, fixed income, hedge funds) and private investments (e.g. private equity, real estate, venture capital, infrastructure, energy, timber). Our reports include investment returns and regular analyses of fund performance. These reports help our clients analyze their performance results, how the results were achieved, and how they compare to customized benchmark statistics.
What is your view on the current investment strategies of Korean pension funds? Should they allocate more resources to Alternatives?
Korean institutions are certainly considering expanding their policy portfolios to include more exposure to alternatives and we would certainly support that move. Depending on the alternative classes included, they can provide the potential for higher returns and also, in the case of edge funds, lower volatility. However, implementation is critical, and requires a rigorous approach to due diligence and manager selection. Few institutions, including some in Korea, have the requisite in-house experience to effectively identify, complete the due diligence on, and gain access to the best alternative asset managers on a global basis. As a result, many investors have had less than positive experiences with hedge funds during the financial crisis and find themselves under-allocated relative to their original plans.
Fear of a potential Madoff repeat looms large and reinforces the need for disciplined and comprehensive due diligence, both before making an investment and on an ongoing basis once the investment is made. The Korean investment community was hit hard by exposure to Madoff. This has caused many investors to step back and examine their investment decision-making process. For many, around the world and not just in Korea, it was a fiduciary wake up call. One of the key oles we play at Cambridge Associates is to protect investors from mistakes by working alongside internal investment professionals to provide rigorous due diligence and a global perspective on manager selection. If Korean pensions want to build out their allocation to hedge funds, they must be prepared to invest in the process of researching, selecting, and monitoring managers.
This issue is also relevant to private investments (i.e., private equity, venture capital, real estate, energy, infrastructure, and timber). Given the significant dispersion of returns among managers and their funds, manager selection and rigorous due diligence are critical. Building a private investment portfolio can significantly enhance returns, but also requires a commitment to building the resources necessary to implement and monitor managers and the patience to build out the program over time to minimize so-called vintage year risk. Based on our observations, many Korean institutional investors are looking at a narrow subset of the universe of available private investment opportunities globally, which will likely limit their ability to generate good risk-adjusted returns.
We have also seen a tendency in Korea to focus on capital preservation in nominal terms. Protecting a portfolio against nominal losses can hide the effect of ongoing inflation and can expose the portfolio to inflation-adjusted capital losses. Such an approach requires an even more vigilant focus on due diligence and manager (or asset) selection. When perceived risk is low (i.e. because of a government guarantee) nominal returns are also generally lower. We like to think in terms of risk-adjusted returns: how much incremental upside could investors receive from an additional unit of risk, and where do asymmetries exist that investors can benefit from?
What are the real estate investment intentions of global investors?
At a very basic level, many people like investing in real estate because it is a “real” asset – something you can see and touch – it typically generates both an income return and a capital return. For people who are skeptical about securitized and less tangible assets, physical real estate can bring a sense of comfort to investors. We see this particularly in Asia. Real estate can also offer investors some inflation protection through exposure to the potential for rising rents and capital appreciation when financial assets are being hurt by inflation. Public and private real estate investments can also provide valuable diversification as well as equity-like returns over the long term. Private real estate offers greater prospects for active managers to exploit opportunities and add value. On the other hand, private real estate is illiquid and more expensive. Public portfolios provide the most immediate source of diversification, whereas private real estate requires time to build. REITs generate cash flow, are liquid, and have lower fees. However, they are subject to the supply, demand, and pricing pressures of the public equity markets. The correlation of REITs to the broad equity markets would likely increase during periods of stress within the market and historically, REITs have been highly correlated to small cap value stocks.
We advise global investors to invest in real estate through a diversified set of public and private fund opportunities and to consider relative value at the time of implementation. The other interesting trend is global investors’ portfolio mix of investments in limited partnership vehicles and direct investments in properties. Large institutional investors have typically first built a portfolio of limited partnership investments, allowing them to build relationships with the fund managers over time. This can then provide a foundation for co-investments alongside these managers, as well as eventually for a portfolio of direct investments, where a sufficient in-house resource with appropriate direct investing experience exists. In the context of a large, diversified portfolio, such direct investments may be appropriate. However, smaller institutional investors might be taking unnecessary risk with direct property investments, sized too large relative to the size of their asset pool. More often, these types of institutions build exposure to real estate through limited partnership vehicles, more appropriate to their size and diversification needs. The risk in Korea is that smaller institutions, in particular those without appropriate in-house investment resources, seek to emulate the leading investors when they do not have the internal resources to implement and replicate those strategies.
Are Asia and Korea an important part of their strategy?
Yes, Asia, including Korea, is definitely considered in the opportunity set in a global portfolio. Many of our North American clients travel regularly to the region and a few have opened up offices in Asia for the very purpose of analyzing Asian investment opportunities. They are gradually increasing their exposure to alternative assets in Asia, while paying close attention to relative value at a time when a great deal of capital is flowing into emerging markets. Investors should be careful to diversify by vintage year, strategy, geographic location, property type, and manager.
What asset classes and markets are favored by global investors?
Right now it is challenging for global investors, as we are not seeing many obvious, attractive opportunities from a valuations perspective. That means we are encouraging our clients to be defensively positioned.
What does that mean?
Within equities, overweight high-quality or mega-cap growth stocks and long/short equity hedge funds. Both strategies may under-perform in a rising market, but they should prove more defensive when market corrections occur. We are also encouraging allocations to managers with flexible mandates who can respond quickly to opportunities that arise in a rapidly shifting landscape. Of course, greater selectivity and ongoing oversight is required when hiring managers with more flexible mandates. These managers should have a depth of experience in the markets they participate in and a proven record of adding value through tactical moves. We continue to be cautious on most Western developed market sovereign bonds in light of weak fundamentals and expensive valuations. Both of these factors suggest that an allocation to sovereign bonds should not be expected to provide as much defense as it has historically, and that it should be supplemented by cash when yields are very low.
In terms of markets, we are recommending that our clients stay neutral on developed market equities. Equity valuations in developed markets are generally not excessive, although U.S. equities are currently overvalued. In emerging markets, while valuations are still somewhat stretched, maintaining exposure and building a strategic overweight are important from our perspective. For those with relatively large allocations to emerging markets, we would consider a more diversified exposure utilizing a multi-asset class approach, incorporating equity, local currency debt, hedge funds, and private investments if appropriate.

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Interview: Mr. Choi Joong-kyung, Minister of Knowledge Economy

Minister of knowledge Economy Choi Joong-kyung is a veteran finance official who has served in key finance posts in the government and Blue House. He passed the civil service exam in 1978, beginning his career as a finance official. He was appointed vice minister at the Ministry of Strategy and Finance when President Lee took office in February 2008 and pushed a weak won policy to boost the country’s exports during the recent financial crisis. He also held the post of President Lee’s senior secretary for economic affairs.
In an exclusive interview, he speaks about his priorities and plans for this year.

What are your main priorities for this year, and what is your proposed action plan?
Korea posted the world’s seventh-largest export volume in 2010 and overcame the global economic crisis. However, Korea is still responding to changes in the global economic environment, including the emergence of convergence and green industries. Korea also needs to address imbalances between large companies and small and midsize companies.
To ensure the sustainable growth of the Korean economy, the Ministry of Knowledge Economy (MKE) will nurture industries with significant potential to generate growth and create quality jobs. At the same time, the Ministry will train skilled workers and improve working conditions—for example, with the Quality of Working Life Valley. This project will involve turning outdated industrial complexes into multipurpose facilities that not only serve as workplaces, but also as education centers and cultural spaces. In this way, the government will attract more young people to the fields that most need workers.
In addition, the Ministry will establish a stable supply base for energy and resources in response to international price fluctuations. We will pursue more FTAs to expand Korea’s access to advanced markets. Furthermore, by strengthening industrial cooperation with emerging economies, we will achieve $1 trillion in annual trade.
In the process of implementing these policies, the Ministry will communicate closely with businesses and help them resolve any difficulties they may be facing. We hope foreign investors, who have played such an important role in the Korean economy, will invest more in the future.
How is the Ministry implementing the green growth strategy?
Korea’s green growth policy has two aims: to preserve the natural environment and to help the nation achieve sustainable growth. As of 2007, Korea ranked 38th in the world in terms of GDP per capita, and the economy needs to maintain a steady path of growth.
Korea is a nation with immense growth potential, and the government intends to encourage sustainable economic and employment growth by strengthening its efforts to address climate change. We will do this by improving energy efficiency, advancing the clean energy industries, promoting industrial convergence, and pursuing greater innovation in R&D.
The Framework Act on Low-Carbon, Green Growth was enacted on April 14, 2010. The Act requires the adoption of specific targets for energy efficiency and GHG emissions for different business categories. It also mandates the adoption of a certification program to attract green investment. Both the certification system and the strategy to reach our energy efficiency and GHG emissions targets will be in place before the end of 2011.
Furthermore, the government is making a proactive effort to strengthen the institutional framework for renewable energy and energy conservation measures. By the end of the year we will develop a strategy to enter the overseas renewable energy market and gain a sufficient share of the global market to create an export industry. To prepare for the adoption of the Renewable Portfolio Standard in 2012, the Enforcement Decree of the Act will be revised and a detailed action plan will be in place by the end of June.
What steps are you taking to increase Korea’s self-sufficiency rate in oil and gas resources? Could you tell us about support to local renewable energy test projects?
Korea depends on imports for 96.2 percent of its energy needs (2009). According to the IEA, Korea is the world’s 10th major energy consumer and its No. 9 petroleum consumer (2007). Clearly, energy self-sufficiency is an important goal because fluctuations in international energy prices affect key economic indicators such as the current account balance.
In pursuit of this goal, Korea continually seeks to improve energy efficiency and expand the use of clean energy so that we can cut dependence on fossil fuel to no more than 60 percent. By reducing demand for energy in every category (industry, transport, household, commerce), we will improve energy efficiency by 2.6 percent every year until 2030. By that time, renewable energy will account for 11.5 percent of Korea’s total energy consumption and nuclear energy will account for 27.8 percent. Development of the green industries will transform Korea’s industrial structure into one that is less energy intensive.
The government said it will set aside 700 million won from MKE and an additional 700 million won from the Small and Medium Business Administration to support the Commission of Shared Growth for Large and Small Companies. What other steps are you taking to support SMEs?
Like most countries, Korea has a variety of support policies for small and midsize enterprises (SMEs). These include tax incentives, policy funding support, technology development support and a public procurement program.
The global financial crisis hit SMEs especially hard. Accordingly, the Korean government worked to overcome the financial crisis through pre-emptive measures such as massive injections of liquidity for SMEs (e.g., extending maturity dates for 160 trillion won worth of SME loans; 37 trillion won worth of additional loan guarantees; a higher guarantee rate of up to 100 percent).
Going forward, the government plans to revise its SME support policies to better reflect the needs of the self-employed, small traders and small enterprises and to ensure that SMEs develop and grow into stronger companies. At the same time, the government will adhere to the principles of “support and nurture” and “free competition” to encourage the phased development of promising SMEs into large companies.

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Interview: Mr. Robert Gilchrist, Founder & CEO, Rockspring Property Investment Managers LLP

Rockspring Property Investment Managers LLP, now in it’s 27th year, specialises in the acquisition and management of commercial property throughout the UK and continental Europe on behalf of over 220 major institutional clients from around the globe. On behalf of single-client accounts, investment is made either directly into property assets or, indirectly, through the group’s series of tax-efficient, co-mingled investment funds.
Originally established in 1984 as MIM Property Services, Rockspring was one of the first UK-based property managers to specialise in European investment. Working exclusively with institutional investors, the business grew quickly, and in 1993, was bought by Prudential Financial of the USA and became PRICOA Property Investment Management. Following an MBO in 2004, Rockspring Property Investment Managers, as it is known today, was formed. Fully independent and 100% owned by its Partners and employees, Rockspring is headquartered in London with its own network of local investment and asset management offices in Amsterdam, Berlin, Brussels, Budapest, Madrid, Paris and Helsinki. In addition, Rockspring manages client support and services operations via dedicated offices in America and Australia and is in process of opening one Seoul.
Rockspring offers its clients a diverse range of products, from region-wide, pan-European funds to single country and sector specific specialist vehicles. These include the Rockspring Hanover Property Unit Trust, the Rockspring PanEuropean Property Limited Partnership, RockspringTransEuropean II, III, IV & V, The Industrial Trust, Retail Plus, The Rockspring German Box Fund, The Rockspring Portuguese Property Partnership, Rockspring Total Europe, Rockspring UK Value Fund and single client mandates. With property assets currently located in the UK and 12 other European countries, the firm today is one of Europe’s leading property investment managers.
Robert Gilchrist has been with Rockspring for over 23 years and has been active in the European property markets since 1983. After graduating from Cambridge University, he qualified as a Chartered Surveyor and joined Rockspring in 1987. He has been the architect of much of the firm’s significant growth, in particular, the development and launch of new fund products. The first of these was the launch, in 1991, of TransEuropean 1 and the subsequent management of this series of closed-ended funds – TransEuropean V is currently being marketed. In 1998, he was appointed Managing Director. In 2004, alongside Mr. Richard Plummer, the Chairman, he led the successful MBO from Prudential Financial, and was appointed Chief Executive. He has played a leading role in growing Rockspring into one of the UK's leading Europe-wide property investment managers and he continues to be closely involved in new business and overseeing the fulfillment of Europe-wide investment strategies.
Rockspring prides itself on its client-focused approach. “As all of our investment products are funded entirely by equity sourced from third-party, international, blue-chip, institutional clients, everything we do is based on our clear understanding of investors’ needs and ambitions. We invest the time getting to know them and we apply our exceptionally experienced market knowledge and independent status to find solutions that are the ideal fit. It’s an approach that has been proven in every corner of the commercial property market and enabled us to build enduring relationships with leading real estate investors from around the globe,” said Mr Gilchrist.
The recent awards received by the company recognize Rockspring’s enduring commitment to generating value through real estate for its international blue-chip client base. They include ‘Europe Firm of the Year’ - Global PERE Awards 2010, ‘Property Fund Manager of the Year’ – Financial News / Dow Jones Awards for Excellence 2010 and ‘Property Manager of the Year’ - Global Pensions Awards 2011. Mr Gilchrist, commented, “We have spent more than 25 years finding new and innovative ways to create value for our clients. Today, we are fully independent in both structure and spirit and, with a Europe-wide network of property professionals, we work in partnership with our clients to create unique, performance-orientated European property investment vehicles.”
Mr. Gilchrist noted that Rockspring frequently works with global investors looking to invest for the first time in Europe. “It really does help having an experienced local presence throughout Europe.” comments Gilchrist. “Our network of offices across Europe combined with our long history and knowledge of its markets puts us in an exceptional position to advise our clients. For investors that are not inclined towards our tax-efficient co-mingled investment funds, we can assist them co-invest directly in hand-picked assets with other like minded investors in Europe.”
Whilst few investors escaped the global melt down, Rockspring have fared better than many of their competitors. Their core / core plus investment approach combined with their consistent track record and client-centric focus meant investors not only stuck by them, many committed new capital – during 2010 Rockspring closed their UK Value fund with £700m. In 2010 Rockspring invested €1.2 billion across Europe and to 31st March 2011 has seen investments totalling €380m. Notable recent transactions include:
88 Wood Street – acquisition of an iconic, landmark tower building at in the heart of the City of London for £183 million on behalf of a separate client mandate (November 2009)
O’Parinor Shopping Centre, Paris – acquisition of a 51% stake for €223 million on behalf of a separate client mandate (August 2010)
Ferio Shopping Centre, Konin, Poland – acquisition of a retail park for €47m on behalf of the TransEuropean Property Limited Partnership IV (Dec 2010)
The Feulner Portfolio – acquisition of three retail warehouse properties in Neuss, Kassel and the Emspark in Leer, West Germany purchased off-market from a private investor for a total consideration of €62.2 million on behalf of the Rockspring German Retail Box Fund (April 2011)
Speaking on the economic situation in Europe, Mr. Gilchrist noted that the debt crisis has affected everybody around the world in varying degrees. This has resulted in recession in many countries, but has also led to varying responses by national governments. In Europe, there continue to be large regional differences. Greece continues to experience recession, while the Spanish and Portuguese economies have been experienced flat growth. Individual governments are using differing approaches to reduce budget deficits, he noted. This crisis halted the incessant rise in property values that took place from 2003 to 2008, driven as much by the widespread availability of cheap debt as a lack of seasoned understanding of real estate fundamentals.
“We are seeing a steady recovery in economic prospects and confidence in markets. Today a lot of focus on significant fallout has been on Ireland, Portugal, Spain and Greece. They continue to highlight some of the ongoing issues in the European periphery.” said Gilchrist.
However, the recession has not resulted in a significant amount of distressed assets coming onto the market. For instance, in UK there was a peak-to-trough fall in asset values of around 40 percent, but the period of decline was swift and subsequently experienced an equally fast recovery.
“Distress will come about largely as a consequence of the behaviour and reaction of the banks. There is a lot of talk about 2008-9 being one of worst recessions but in my experience 1990-93 was actually worse. The problem then was that a construction boom coincided with recession and oversupply in real estate was much greater then,” he said. The banks, having learnt their lesson, are choosing to hold on to assets today and working through problems before selling them in a steady and unforced manner.
In this context he noted that Korean investors who are selectively looking for landmark assets in UK and Paris are doing so at the right time. “The real estate fundamentals are better. While people may be scared of lower cap rates today, they actually reflect significant rental growth expectations. Their timing is perfectly reasonable and making investments today is safe.”
Typically non-EU investors look at London and it makes sense. London sits alongside New York, Sydney and Tokyo as a global city. It is very much on the radar screen, with Paris a strong second. More adventurous investors may be looking at Germany, Spain or other smaller cities in Europe, but they are in a much smaller proportion.
“One of the reasons I am extremely positive about prospects for investment and ownership in London and Paris is because we are in the middle of the globalisation of everything. Looking back at the London market in 90’s there were only a couple of Japanese, American and European investors. The predominant ownership was by UK institutions. Since then, the market has changed dramatically. Now there are Koreans, Australians, Canadians, Russians and Malaysians to name a few. This is not going to stop.”
In terms of core assets and core market, there is, inevitably, only a limited supply and so competition can be quite intense for investments in the core sectors.
He noted that there isn’t just one ‘right’ answer to the question of how the investors should approach the UK market - either directly or through co-investment club deals, but what is absolutely essential, for any investor that is considering investing globally, is the necessity of access to local expertise before even trying to negotiate and acquire an asset.
“Such investors have to work with a partner in Europe who can provide access to unbiased legal, tax and other structuring requirements in order to fully understand the implications of ownership and returns they can achieve. Once they understand this, then they can start to look at specific transaction opportunities, because by then they know the implications of investing in a particular market,” he said.

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Interview: Mr. Hyun In-taek, Minister of Unification

On May 9th, South Korean President Lee Myung-bak made a surprising offer by inviting North Korean leader Kim Jong-il to Seoul for an international nuclear summit next year with U.S. President Barack Obama and dozens of world leaders if Pyongyang makes a firm commitment to give up its atomic programs.
The proposal, if realized and followed through by Pyongyang, could theoretically lead to the North's reclusive leader attending an international summit with foreign leaders for the first time ever, as well as to a rare summit between leaders of the two Koreas.
The proposal was seen as aimed at pressuring Pyongyang to make a strategic choice to give up nuclear ambitions. It was also believed to be aimed at helping break the deadlock in inter-Korean relations, frayed badly after the North's two deadly attacks on the South last year.
President Lee's offer came as South Korea has increased pressure on North Korea to take concrete steps to demonstrate its denuclearization commitment before opening the six-party nuclear talks. The negotiations have been stalled since December 2008 due to Pyongyang's boycott and tensions over the North's deadly attacks on the South last year.
With tensions on the peninsula rising in recent months, we sought the views of Mr. Hyun In-taek, Minister of Unification, on the government’s policy towards the North and the way ahead.

Could you elaborate on the South Korean government policy towards unification and relations with the North, especially in light of the recent tension between both sides?
Basically, the South Korean government works to improve inter-Korean relations, build peace on the Korean peninsula and, ultimately, achieve a peaceful and gradual reunification of the Korean peninsula. We aim to achieve a Korean unity by building a peace, economic, and national community between the two Koreas. Since North Korea’s nuclear armament is the most pressing issue facing the Korean peninsula, we believe that building a peace community by denuclearizing North Korea should be the first step in our endeavours.
To this end, the Lee Myung-bak administration has proposed the “Vision 3000: Denuclearization and Openness” initiative. The initiative suggests that once North Korea decides to abandon its nuclear program, the South Korean government, together with the international community, will provide large-scale economic assistance to help North Korean economy make a substantial leap forward. In pursuing such a policy, the administration has maintained a “principled” approach by promoting sound inter-Korean relations based on mutual respect between the two Koreas and upholding such universal values as humanitarianism.
Despite our efforts, however, North Korea has continued to raise tensions on the Korean peninsula during the past three years with its brutal provocations, including the shooting death of a South Korean tourist at Mt. Geumgang in July 2008 and second nuclear test in May 2009, not to mention a torpedo attack on the Cheonan and shelling of Yeonpyeong Island last year.
To make a substantial improvement in inter-Korean relations, we believe that, more than anything else, North Korea must change its provocative attitude. In this regard, we have urged North Korea to take responsible measures regarding the two attacks it made last year, promise non-recurrence of such provocations in the future, and hold inter-Korean talks on the nuclear issue to confirm its sincere commitment to denuclearization.

What is your opinion of the economic cooperation programs like Gaeseong? What has been the progress of these ventures and do you think they should continue?
It has been already eight years since the two Koreas embarked on the Gaeseong Industrial Complex (GIC) in June 2003. The Complex has grown significantly over a short period of time. Even despite North Korea’s provocations last year, the South Korean government has sustained the Complex.
The number of South Korean companies operating in the GIC currently is 122, a 30% increase from three years ago. Although new investment in the Complex has remained restricted since the Lee Myong-bak administration suspended interactions with North Korea following North Korea’s attack on the South Korean corvette Cheonan, most South Korean companies in the GIC have been doing their business as usual. Last January, for example, the total production in the Complex reached US$ 31 million, recording an all-time high on a monthly basis.
Yet, if we are to make the GIC an industrial complex with a truly global standard, several key issues must be cleared. The most important of all is to allow South Korean workers commute more freely to the Complex. In this regard, we have urged the North many times to remove inconvenience related to so-called the “3C” issues--border crossing, communication, and customs clearance. Another issue arises from the very fact that the GIC is located in North Korea. This makes the Complex vulnerable to the ups and downs in general inter-Korean relations, which, in turn, may affect the investment climate. Moreover, the personal safety of our workers has yet to be fully guaranteed.
Nevertheless, as long as the situation does not deteriorate drastically due to such factors as military provocations by North Korea, the South Korean government is willing to maintain and even support steady growth of the Complex. While placing our highest priority on the personal safety of South Korean citizens working in the Complex, we will keep addressing the need for institutionalization to improve procedures for entry and stay for the GIC workers.

Early last month, we understand that North Korea jammed GPS signals and also resorted to hacking of many government websites. Given this, how well prepared is the Korean government to tackle North Korea’s cyber warfare capabilities?
The disruptive electronic waves that jammed our GPS signals last March seems to have originated from several regions in North Korea, including Haeju and Gaeseong. In response to such threats, the South Korean government has reinforced its security and monitoring system in order to prevent additional cyber attacks by North Korea. We have also reorganized and expanded relevant government agencies and increased cooperation among the government, military, and private sector.
South Korea certainly has technologies to counter North Korea’s cyber warfare. With capabilities far surpassing those of North Korea, we can and will properly counter any cyber threats from North Korea in the future.

The six party nuclear talks have stalled for some time now. When do you foresee the next talks taking place, and what are the main challenges on this front?
These days people often ask whether the Six-Party Talks will be resumed and, if so, when. I think, however, a more relevant question should be how productive the talks would be when they are resumed. When resumed this time, the Six-Party Talks should result in a concrete contribution to the denuclearization of North Korea. They should not be the “talks for talks’ sake.” To avoid it, North Korea must come to the table with a serious and sincere commitment to denuclearization.
North Korea has a long record of violating agreements, including the 1994 Geneva accord and the September 19 joint statement reached under the six-party framework. This is exactly why South Korea and the rest of the international community have continuously urged the North to prove its sincere commitment to denuclearization through actions, not just words.
The outcome of the talks is more important than whether the talks would be resumed or when they would. In this regard, I would like to stress once again that the North must abandon its nuclear ambition. To induce such a change in North Korean attitude, we must work with the international community.

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Interviews: Mr. Pierre Vaquier, Chief Executive Officer, AXA Real Estate & Mr. Frank Khoo, Global Head of Asia

The AXA Group has been managing real estate portfolios for over 30 years. The different real estate units were consolidated with the strategic decision in 1999 to create AXA Real Estate Investment Managers. This was done so to complete the consolidation
of AXA’s real estate management capabilities throughout Europe.
At the same time, it was considered that there was a significant opportunity to leverage this infrastructure, in order to become a leading panEuropean real estate investment manager offering services to both external institutional investors as well as existing AXA clients.
Since 2006, AXA Real Estate Investment Managers has expanded its presence in Asia with offices in Tokyo and Singapore. In 2010, AXA Real Estate Investment Managers
became AXA Real Estate and expanded its global footprint with the creation of a capital raising team based in the United States.
As noted by Mr. Frank Khoo, Global Head of Asia, AXA Real Estate, today, the company is the world’s second largest real estate fund and asset manager, and the largest in Europe, with €40 billion of assets under management. It has over 120 external institutional clients spread across the world, in addition to managing funds for around 10 AXA insurance companies.
“With 500 real estate people operating in 22 countries, AXA Real Estate's competitive advantage stems from its global fund management expertise combined with extensive on-the-ground deal sourcing, asset management and development execution capabilities,” he said.
The company structures and actively manages investment products, seeking wide-ranging opportunities along the risk spectrum to deliver targeted returns commensurate with clients' risk profiles, through a variety of investment strategies.
These range from core to opportunistic, country-specific to geographically diversified, sector-specific to multi-sector, with the capacity to invest at all levels of the capital structure.”
“Our core business is real estate fund, asset, and development management. We have extensive local expertise in all of the major property types. In addition, AXA Real Estate offers specialist local expertise in areas such as transaction execution, development, asset and project management, tax, legal, accounting, risk management and compliance.”
Mr. Khoo joined the company in 2008 to help the company expand its operation in Asia. Appointed as Global Head of Asia, based in Singapore, he coordinates the development of the company’s investment and asset management activities in the region.
He also manages the development of investment platforms in Japan and has set up a local presence in other parts of the region which are important to AXA Real Esate’s strategy. He has contributed to the launch of Asian investment funds to develop its asset base in Asia on behalf of its clients.
With over 15 years in the investment industry, he has extensive experience in private equity and real estate and a deep knowledge of all the Asian markets. His expertise in deal sourcing and execution as well as fund launches have contributed widely to the company’s ambitions to become a major player in the Pan-Asian real estate investment industry.
In addition, Mr. Khoo has also been appointed as Co-Chairman of the EUCCK Real Estate Committee and will be coordinating its activities, seeking to give is wider exposure in Singapore and other Asian markets.
Speaking on this new role with the chamber, he noted that the Committee has already established itself as one of the premier platforms for Real Estate professionals in the region, having organized highly reputed international conferences and meetings. As Co-Chairman, he hopes to contribute towards expanding its activities and raising its profile even more.
Speaking on the priorities for AXA Real Estate, he noted that global growth remains a key priority and AXA Real Estate is currently expanding its presence in both the US and Asia, most recently with the launch of its US platform last year.
He also noted that the company signed an agreement with The Sumitomo Trust and Banking Co Ltd (STB), one of the largest trust banks in Japan, formalizing plans to jointly set up a new investment fund for Japanese real estate.
“Over the past three years, we have substantially expanded our operations across the Asia region, establishing the new Asian headquarters in Singapore, announcing a memorandum of understanding with China’s Ping An Trust to co-invest in developing residential projects in China and also the deal with STB.”
These developments were the next step in AXA Real Estate’s plans to offer a diversified range of Asian real estate opportunities to institutional investors, in complement to the firms established European capabilities, he said.
“We already had an existing team on ground in Japan, but we chose to tie up with Sumitomo as we feel that this tie up will greatly enhance our execution ability in Tokyo both from the aspect of deal sourcing and asset management.”
There is no doubt that investors are now recognising that the pace of growth in the Asian property market is likely to outpace that of both the US and Europe. As such, they are increasingly prepared to consider exposure to the region when building up a balanced global strategy, he added.
He said that in general there was a ‘three-tier’ approach emerging in terms of investors' attitude. One for countries like Japan, which as the most mature Asian market, offers investors core investment characteristics especially on good quality commercial assets. The next for ‘semi-developed’ markets like Korea, Singapore and Hong Kong, while the last for the emerging Asian markets like China and India.
The emerging markets are more opportunistic and therefore are more suited to those investors who are prepared to accept a slightly higher risk profile.
“Asia is becoming a strategic destination for the real-estate investor and we want to support our group and third party client efforts in diversification and creation of value,” he
said.
In a separate interview, Mr. Pierre Vaquier, Chief Executive Officer, AXA Real Estate, who was in Seoul to meet with potential investor partners noted that while Korea is an important market for the company, it is not an immediate priority.
“ We want to expand our investments in Asia, are considering Korea for medium term exposure. Although a very mature market, it is still dominated by domestic players. It is only recently that the foreign investors have started coming it. We look at it as a key investment market in the long term,” he said.
When the company invests in a new territory, they consider it very important to have local expertise. While in Europe they have setup their own local teams, in Asia, the strategy is to have both a local team and a local partner. For example the company has teamed up with a local partner in China.
As for the emerging BRICs, he noted that they have a huge potential, and each country has its own advantages, although Russia does not have the characteristics of other emerging markets and is energy driven. The outlook for China, India and Brazil is very positive.
“The only country where we have no strategy is South Africa, as it is a market of its own, and we have to be very cautious.”
Mr. Vaquier said the main challenges the company faces in new markets is to understand local characteristics and have a secure environment to do business.
“We need to be careful with volatility of markets, and have to be very careful with the business cycles. Getting a good local partner is important as also investing in real estate asset classes which are backed by growth model.” support case
With regard to the European economy which has been hit by the debt crisis in Ireland, Greece and Portugal, he said AXA is “cautiously positive” that the recovery will take place soon.
“ The worst is behind us, and many private companies are expanding again. The worries on the debt are not going to disappear overnight, and will take a few years. But it will definitely recover.”
While the citizens of many of the countries have been protesting the austerity measures that have been implemented in these countries, he noted that the combination of higher taxes and slower consumption is painful, but there are not much choices left.
“The governments have to take into account all factors. The people are critical not of the measures, but how it is being implemented,” he said.
Speaking on the impact of the Japanese tsunami on the company’s business, he noted that although it is too early to say, it will likely not have much of an impact. The disaster has shown that earthquake regulations have been effective in limiting the damage. While the economy may be effected in the short term, the reconstruction efforts will help the economy grow again.
Since AXA is involved in life insurance and not in property/causality insurance, there will be no impact on the parent company, he said.

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Interview: Mr. Lee Hyun-dong, Commissioner, National Tax Service

Last year, Korea marked its highest level in foreign direct investments since the financial crisis, which is close to $12.8 billion, despite of instability in the financial market and the geopolitical security crisis. Korea also achieved the growth rate of 6.1% last year thanks to foreign investment, even amid a global trend of a decline in foreign direct investments.
Though the number of foreign and foreign invested companies in the Korean market takes up only 2%, their contributions to Korean tax revenue is significant, reaching up to 18% of the national revenue.
At the pan-governmental level, Korea is making every effort to attract foreign investment. Starting this year, the National Tax Service started issuing statements in English to help non-Korean speakers. Taxpayers are also now able to choose an English-language option for statements from as far back as the 2006 fiscal year. Previously, taxpayers paid fees to translate and notarize financial statements, which were only available in Korean.
Beginning June 24, the agency will also issue statements via its Web site (www.hometax.go.kr). The tax agency will open an English-language Web page to improve services for foreigners and foreign companies seeking to verify documents. These are just some of the proactive steps that the agency is taking under Commissioner Lee Hyun-dong. In an interview, he explains more:

In your view, what is currently the most important challenges and objectives of National Tax Service?
The reality faced by National Tax Service in 2011 is characterized by challenges of weakened tax base, more aggressive tax evasions and opportunities such as strengthened trust for tax administration, more transparent society and international cooperation among tax authorities.
Under these circumstances, National Tax Service's objective for this year is "fair and trustworthy tax administration respecting our clients" so that it can be one of the world's best tax authorities.
To achieve this goal, we will first make efforts to create a social environment in which honest tax payers are truly respected. We'll lend support so that sincere small businesses won't have to worry about how to pay tax. We'll also minimize the amount of notices reminding them of reporting income so that everyone can pay tax in an autonomous manner. Moreover, those who continue to pay tax honestly will be exempt from tax investigations or benefit from simplified investigations. To help Korean businesses operating overseas, we'll strategically consider the preliminary approval of previous prices and a mutual agreement between Korea and the country where the Korean business is run. If necessary, we'll strengthen the bilateral cooperative network through, for example, the national tax service commissioners' meetings.
Second, we'll strengthen our system preventing tax evasion by further encouraging citizens to pay tax honestly. Doing this will require us to clearly identify tax evasion cases and to select those subject to tax investigation in a rational way. Moreover, to eradicate new types of tax evasion based on financial derivatives or e-commerce, we'll develop and support investigation techniques at the Forensic & Anti Tax-evasion Center (FAC) which was established this February. In addition, we'll continue to ensure transparent transactions by firmly establishing the system of e-tax invoice and by strengthening the monitoring of business types eligible for issuing cash receipts.
Third, we'll continue our efforts to find hidden sources of taxation. A case in point is prevention of offshore tax evasion. Last year, we worked hard on developing the infrastructure designed to prevent offshore tax evasion. Base on this infrastructure, we'll focus on blocking such evasion. Meanwhile, we'll try to strengthen the tax base by cracking down on those who don't respect the basic tax order. Examples of such cases that are to be eradicated would be politicians who violate law to evade tax, those who avoid paying overdue taxes, those who carry out transactions without issuing tax invoices and those who don't register their business.
Are there any measures in place designed to help foreign investors pay tax easily in Korea?
What is the most necessary for a business operating overseas would be a transparent and predictable tax code and a strong taxation system.
To enhance the transparency and predictability of taxation, we make efforts to improve our current Q & A system to give accurate answers more promptly. Moreover, we introduced a system meant to help interpretation of the tax law in 2008. This system allows tax payers to ask more specific questions about their everyday tax paying practices and to receive applicable answers from National Tax Service.
Furthermore, National Tax Service reached "gentleman's agreements" with businesses. This agreement allows businesses to communicate their tax-related issues to the Service whose special team answers their questions in real time. Up until last year, we conducted a pilot project to test this system on 15 businesses and this year, the Service signed this agreement with 70 businesses. The companies that sincerely respect the clauses of the agreement will be exempt from the regular tax investigation.
This agreement enables the businesses to predict their tax amount before reporting their revenue and it also removes unnecessary uncertainties regarding taxation. The agreement is thus expected to contribute to enhancing the transparency of business management, a factor that is particularly emphasized these days.
Second, there are many easy ways to report income and pay tax. Our Hometax-service, which allows tax payers to report their income and pay tax without visiting the tax office, would be one of the best services in the world. More than 96% of the corporate tax is reported and payed through this service. In addition to reporting and paying tax, other major affairs such as business registration may also be done online thanks to the "Paperless-e" office whose functions have been expanded.
National Tax Service has recently revealed its willingness to eradicate offshore tax evasion. Could you specify?
Offshore tax evasion triggers unfair taxation in that such tax payers mostly possess a great amount of income and property and in that they give unnecessary tax burdens to honest tax payers. Moreover, illegal capital flight preceding such evasion also chips away domestic consumption and investment resources, damaging the domestic economy. That is why such evasion needs to be eradicated.
In an attempt to alleviate their financial deficit and to secure tax revenues in the post-recession era, countries around the world engage in a war to fight against such evasion mainly by creating new domestic systems and by allocating more budget. International cooperation is also strengthened in this matter in the framework of the OECD or G20. Meanwhile, countries traditionally known as tax havens have recently agreed to ensure their financial transparency, contributing to the creation of an international environment favorable for the eradication of offshore tax evasion.
Since last year, National Tax Service has also concentrated on eradicating such evasion. This endeavor has drawn attention not only form the Korean media and National Assembly but also from all Korean citizens who have actively supported us.
Last year, we focused on establishing a system designed to respond to offshore tax evasion. To be more specific, we adopted a system which requires those who have more than one billion won in the account of an overseas financial institution to report the transactions of the account. We also created an organization specializing in dealing with such evasion and secured a budget to eradicate such practices. These are our tangible results.
This year, we'll redouble our efforts to secure a tax revenue of at least one trillion won in the tax investigation on offshore tax evasion. To do so, we have increased the number of those who participate in this investigation and only highly competent people can be the members of our investigation team. In addition, our agents will be dispatched to the cities where tax evasion is the most frequent or to those that are included in the itinerary in order to ensure onsite data collection. Moreover, we'll strengthen the simultaneous tax investigation with other countries including the United States, while making the best use of the simultaneous information exchange agreements signed with tax havens, in an attempt to find domestic property that is hidden overseas.
Our biggest priority for now would be the successful implementation of the overseas account report system which was launched this year.
Foreigners who work for foreign companies in Korea live in the country according to the domestic tax code but if they lived in Korea for less than five years over the last ten years, they don't have to report their income.
Many SMEs are worried about frequent tax investigations. Do you have any solution to ease their concerns regarding such investigations?
In Korea, the percentage of SMEs that undergo tax investigation is lower than that of large businesses. As of 2009, only 0.83% of Korean SMEs were subject to such investigation. It is thus difficult to say that Korean SMEs undergo frequent tax investigation.
Nevertheless, National Tax Service is making administrative efforts to minimize SMEs' burden when they become subject to such investigation.
First and foremost, if a relatively honest SME has to undergo an investigation, the investigation period becomes shorter and simpler. Such "simplified tax investigation" is focused on management consulting in the area of accounting and tax, rather than on taxation itself.
As for very small businesses which don't have its own office or whose office is too small, their representatives may also visit the investigation authorities to undergo investigation. This "out-of-office investigation system" enables such businesses to save their taxation-related expenses.
Furthermore, to remove the uncertainties faced by tax payers before undergoing such investigation, we provide them with an orientation course before the investigation and explain the process during the investigation period. At the end of the investigation, a special day is in place to answer the tax payer's questions.
Lastly, if an investigation infringes on the tax payer's rights, he or she can ask a "tax payer protection agent" for help. Through this system, we're doing our best to make sure that each tax payer's rights are protected.
Although it is true that the measures mentioned above greatly help small businesses alleviate their economic or psychological burdens, what is more important would be the mutual trust between National Tax Service and tax payers. Such trust can be formed when both respect the mutually agreed-upon rules. To win trust from Korean citizens, National Tax Service will conduct tax investigation based on the laws and rules and it will do its best to prevent any misunderstanding that may arise from its investigation.

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Interview: Joyce Lo, Associate Director – Head of Corporate & Investor Strategy, Sniper Capital

Sniper Capital was established in 2004 to capitalize on the many property development and investment opportunities offered by Macau’s burgeoning economy. Since then its business has grown considerably.
Today the company employs 25 dedicated professionals working on a portfolio that has expanded beyond Macau's city limits to include the Western Pearl River Region of Southern China.
Sniper Capital utlises a broad array of in-house capabilities to efficiently execute every aspect of the investment and development cycle. Its dedicated focus on research and acquisitions, project development, asset management, fund administration, capital raising and investor communications allows the company to act both independently and swiftly to maximise returns on each project.Joyce Lo, Associate Director – Head of Corporate & Investor Strategy, Sniper Capital, spoke to us about the company’s plans as well as prospects for the Macau market.

Could you give us some background of your company and your major projects?
Sniper Capital Limited is an independent property investment manager specialising in property investment and development in niche and undervalued markets. Today, the firm manages two funds – the private closed-end South China Sniper Fund (SCSF) and London Stock Exchange Main Board listed Macau Property Opportunities Fund (MPO) – with combined assets of $350 million.
MPO is an opportunistic investment fund that focuses on delivering long term returns from the investment and development of high quality properties in Macau and China’s Pearl River Delta. The portfolio properties are generally of medium to larger sizes. SCSF acquires niche, small sized properties in districts which have yet to reach their full potential, and creates value through the amalgamation, redevelopment and repositioning of these properties into retail and food and beverage outlets.
Since November 2010, Sniper Capital has begun officially marketing the Macau Sniper Fund, a $100 million private fund that adopts a strategy similar to SCSF. With over seven years of experience operating in the Macau and Southern China property markets, Sniper Capital has established a strong track record in sourcing, planning and redevelopment, including working with sensitive heritage sites and old buildings. Recently, Sniper Capital has also started leveraging its sourcing and acquisitions expertise and extensive investor reach to build an investment advisory business.
Sniper Capital’s in-house expertise covers every aspect of the investment and development cycle, including research, site acquisition, project development, asset management, investor relations and finance.
Within MPO, major portfolio residential projects include The Waterside (luxury residential leasing) – Tower Six of One Central Residences, the most prestigious residential project in Macau – and The Fountainside (low density residential development) – 42 apartments catering to middle- and upper-income locals. Other key assets include a retail development in Senado Square– located in the heart of Macau’s popular tourist and shopping district – and APAC Logistics Centre (warehousing and logistics) – close to the recently-opened Guangzhou-Zhuhai rail network and the Hong Kong-Zhuhai-Macau Bridge, currently under construction.
We have also recently entered into an agreement with a local Macau developer to sell our Rua do Laboratório project (entry level residential) for $41 million, representing a net return on investment of 84%, upon the sale completion expected in April 2011.
On the private funds side, the Group is involved in a number of non-gaming destination creation projects through the conversion of older, Portuguese-colonial style buildings into retail outlets that can be leased to attractive bars, restaurants, and niche shopping designed for the enjoyment of both locals and tourists. These new landmarks are rapidly becoming places of choice for people who want to experience the vibrancy of the new Macau as well as the rich 500-year history that the territory’s historic areas have to offer. These unique projects, which have been conceived in conjunction with Macau's dedicated Heritage Department, are in complete contrast to the cutting edge designs of the nearby casino hotel resort projects.

Why are you focusing on the Macau market and what are the investment opportunities?
The firm’s principals, Tom Ashworth and Martin Tacon were attracted to Macau’s potential after its 1999 handover from Portugal to China, and the local administration’s decision soon after to break the 40-year gaming monopoly held by Stanley Ho and allow foreign casino groups to open resorts. Once a sleepy fishing village, Macau is today by far the world’s largest gaming market, generating $25 billion in casino revenues and welcoming 25 million visitors a year.
We continue to believe that Macau remains in the early stages of a period of sustained economic growth. A new round of mega resort expansion in Cotai, coupled with ambitious infrastructure projects such as the Hong Kong-Zhuhai-Macau Bridge, PRD inter-city rail network and Macau Light Rail Transit system all point to an increasingly dynamic and rapidly growing economy. Macau remains well positioned to benefit from the opportunities that will arise as a result.
Non gaming Retail and Food & Beverage
Non-gaming currently accounts for less than 20% of Macau visitors’ expenditure. The heavy focus on Macau casino projects has left Macau with a significantly underdeveloped non-gaming entertainment and leisure market. Underscored by the government’s commitment to diversify the economy, Sniper Capital expects the proportion of non-gaming revenues to increase exponentially in the coming years. Looking at the evolution of Las Vegas – where half of visitor expenditure today is allocated to non-gaming activities – we believe there is a great deal of potential upside by focusing on non-gaming real estate in Macau.
Residential
The entry of the international casino and resorts has lifted the benchmark for an improved standard of living in Macau. There is an increasing demand for high quality housing in prime locations from both expatriates and the more affluent locals looking to upgrade. Unemployment in Macau has dropped to a historical low of 2.7% while median monthly incomes are on the rise. There are also favourable government initiatives that spur demand for affordable accommodation from first time local buyers. Macau’s residential property market – which rebounded strongly post the financial crisis – is still exhibiting good value. According to Jones Lang LaSalle, capital values for the high end residential market rose by 9.6% in 2010. The modest upturn in Macau’s residential property market, compared to Hong Kong and other regional markets, is expected to continue benefitting from powerful local drivers and high levels of affordability.
Logistics
The construction of the $11 billion Hong Kong-Zhuhai-Macau Bridge will create a critical transportation link between western and eastern Pearl River Delta (PRD). When completed in 2016, travelling time between Hong Kong and Zhuhai will be reduced to a mere 30 minutes. To capitalise on increasing opportunities arising from the rapid economic integration of the PRD region, MPO is developing APAC Logistics Centre – a state of the art warehousing and logistics facility in Zhuhai.

What are the major differences between Macau and other Asian countries?
Macau, the only gaming jurisdiction in China, has since 2006 replaced Las Vegas as the largest gaming market in the world by gaming revenues, and are now almost double that of Nevada and New Jersey combined. Figures show that one of Macau’s casino groups – SJM – has revenues that exceed those of the entire Las Vegas strip.
CLSA expects Macau’s nearest rival, Singapore, to hit gaming revenues of $6.5 billion this year, on par with that of Las Vegas, but behind Macau at $30 billion. By 2012, Singapore is expected to rake in $8.1 billion, ahead of Las Vegas at $6.8 billion but still a fraction of Macau’s forecasted $34.7 billion.
Underpinned by strong fundamentals, Macau is set to be Asia’s fastest growing economy, at an estimated growth rate of 30% in 2010. With less than 30 square kilometre of land, Macau has the highest population density at 18,835 per sq km as well as one of the highest GDP per capita of $48,000 in Asia.
Aside from outstanding economic fundamentals, Macau, the oldest European colony in East Asia and the most recently relinquished colony in the world, boasts almost 500 years of rich Portuguese heritage. The government has established an official heritage department to preserve the unique blend of Chinese & European in architecture. The fusion of these cultures is also prevalent in the cuisine and the population.
In addition, Macau is the only place in China that has freehold land, although there is not necessarily a price differential between leasehold and freehold.

What differentiates Sniper Capital from other Boutique houses?
Our independence and minimal bureaucracy make us nimble and innovative. Our culture is highly entrepreneurial which encourages lateral thinking and attracts self-driven personnel.
As our name suggests, we are highly focused on certain markets and segments. We are attracted to “below the radar” properties that are often overlooked by larger developers. Moreover, we have the technical knowledge and capability in working with heritage sites. At this point, we are the only major foreign fund manager that is established and continue to grow in Macau. We believe in having local presence with our team developing a vast network of proven and established contacts in the markets in which we are operating. This fuels our ability to source, acquire and manage quality investment opportunities with strong value propositions.
In addition, we possess excellent in-house resources to across the entire investment cycle, delivering value enhancement through planning, development, asset management and eventually through a successful exit.

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Interview: Mr. Lee Soo-won, Commissioner, Korea Intellectual Property Office

The Korean Intellectual Property Office (KIPO) has a wide range of responsibility areas, ranging from patent and trademark examinations, to administering the IP Tribunal (the first stage of invalidation actions in Korea), and launching a Special Judicial Police force last year specializing in trademark infringement enforcement actions.
Mr. Lee Soo-won has served as Commissioner of KIPO since his appointment in May 2010. Prior to his current position, he worked in the Office of the President as Secretary to the President for Economic Crisis Management.
As Commissioner of KIPO, Mr. Lee is in charge of intellectual property (IP) policies. His top priorities are to enhance the quality of patent examinations; to maximize R&D efficiency through patent strategy and open innovation; and to facilitate cooperative work-sharing with other leading IP offices.He is also endeavoring to initiate various programs of international cooperation to meet the desperate needs of the marginalized and impoverished, especially those who struggle for the basic necessities of survival.
Commissioner Lee, who brings a large amount of senior policymaking experience to the role, outlines the current policy in a number of key areas in an exclusive interview.

In recent years, KIPO has established itself firmly in the top rank of international patent offices. Could you give an indication of your priority areas for international cooperation, in particular in regards to IP5 initiatives and also KIPO's role in capacity building in developing countries?
KIPO is engaged in extensive cooperation with the other major intellectual property (IP) offices that make up the IP5 offices, namely the European Patent Office (EPO), the Japan Patent Office (JPO), the State Intellectual Property Office of the People's Republic of China (SIPO), and the United States Patent and Trademark Office (USPTO). The aim of IP5 cooperation is to raise the efficiency of patent examinations and administration through work-sharing among the five leading offices. This type of cooperation helps improve the timeliness and quality of patent examination services.
The IP5 offices are collaborating on ten foundation projects. The projects involve three working groups on patent classification, IT supported business processes, and patent examination policy. KIPO leads two of the foundation projects: the Common Training Policy Project and the Mutual Machine Translation Project. The fourth IP5 heads meeting will be held in Japan in April 2011. It will be an opportunity to check the progress of the foundation projects and to discuss plans for further cooperation in the future.
KIPO is also actively engaged in bilateral cooperation. We had more than 30 bilateral meetings with other IP offices in 2010 and broadened our exchanges with European countries. In January we had a heads meeting and discussed bilateral activities with the EPO. And in February we had another heads meeting with the Intellectual Property Office of the United Kingdom (UKIPO). At the latter meeting we discussed an ongoing mutual benchmarking exercise to enhance examination quality and productivity. I believe the project with the UKIPO is indicative of our world-class examination capabilities.
In March 2010, we signed a memorandum of understanding with the Italian Patent and Trademark Office on IP protection. And in July we began implementing a Patent Prosecution Highway (PPH) with the German Patent and Trade Mark Office. This project enables each office to conduct accelerated examinations by utilizing the examination results of the other office. KIPO is also endeavoring to strengthen cooperative ties with the Office for Harmonization in the Internal Market (OHIM). These efforts are expected to come to fruition in due course.
Once a least developed country, Korea now has the fourth largest number of patent applications. This transformation has motivated us to help developing and least developed countries (LDCs) achieve economic progress through the utilization of IP. In 2004, we established the Korea Funds-in-Trust at the World Intellectual Property Organization (WIPO) to help enhance the IP capabilities and raise IP awareness in developing countries and LDCs. To date, 69 countries have benefited from the 45 projects under this scheme.
Recently we embarked on a project to provide appropriate technology to least developed countries. We also assist developing countries to create local brands so that they can sell their quality products at adequate prices. Last year, for example, we disseminated appropriate technology to Chad to help locals produce sugarcane charcoal and dried mangoes. And we are now planning to distribute sand brick technology to Nepal. Last year we also assisted in the branding of Chadian dried mangoes and, in 2009 we helped the YMCA with the branding of East Timorese coffee that was imported and sold under the fair trade movement. This year we will collaborate with APEC on the One Village One Brand project.
One of the areas that receive a lot of attention is efforts to maintain patent quality, especially in the face of soaring global patent applications and subsequent increases in examiner workloads. Could you outline KIPO's efforts to maintain examination quality whilst keeping on top of rising application numbers?
The soaring number of patent applications means that IP offices around the world face a common challenge in terms of managing and maintaining the quality of patent examinations. As with domestic applications, KIPO is now receiving an ever-increasing number of requests from foreign enterprises for international searches under the Patent Cooperation Treaty (PCT). This trend has led to huge increases in examiner workloads.
To deal with the increasing number of applications, KIPO has developed and implemented various policies on the provision of high-quality examination services. Firstly, we have recruited additional highly qualified examiners. We have also improved our training courses on new technologies so that examiners can keep abreast of rapidly changing technologies. Moreover, we ensure the quality of our examinations by assigning skilled experts, such as directors of examination divisions and heads of examination sections, to guide and supervise the entire examination process.
The Office of the Examination Quality Assurance Officer is responsible for the overall management of the examination quality. The staff of that office evaluate and manage the quality of patent, trademark, and design examinations. They evaluate samples of examiners' work results and undertake relevant planning, diagnosis, and analysis in order to improve the overall quality of our examinations. The evaluation results help examiners avoid repeating errors and rewards are given to divisions and examiners with excellent evaluation results. The results are also included in the overall performance evaluation of each examiner.
A special team of examiners is also dedicated to ensuring the quality of PCT applications.
Trials at the Intellectual Property Tribunal is playing an important role in the resolution of IP disputes. Could you briefly explain what efforts are being made by the Intellectual Property Tribunal to improve the quality of the trials and to increase the efficiency of the trial procedures?
The Intellectual Property Tribunal, which is one of the organizations affiliated with KIPO, continually strives to ensure the quality of trials and to improve the efficiency of trial procedures. To raise the trial quality, the tribunal analyzes the grounds for the revocation of trial decisions and includes the outcome in the evaluation of trial examiners. It also provides training courses on the cases involving revocation of the trial decisions for trial examiners. Each quarter, the tribunal rewards trial examiners who have made exemplary trial decisions.
The tribunal has endeavored to have more oral proceedings and to improve the quality of those proceedings. In inter parte cases where parties are sharply opposed to each other, the tribunal conducts oral proceedings to clarify the issues and to ensure the accuracy of the relevant facts. We have also increased the number of trial courts from one to five, recruited four additional court reporters, and equipped all the trial courts with a digital deposition system. Last year the tribunal conducted 647 oral proceedings, and it expects to keep this number at an annual average of about 600.
The tribunal has produced a guide manual to standardize written trial decisions, which is accessible on our electronic trial system. The manual is expected to help trial examiners minimize the preparation time for writing trial decisions.
One major recent development in KIPO's activities has been the founding of the Special Judicial Police force, which began operations in September 2010. Can you give an overview of the role of this department, and are there any ways that the EUCCK IP Centre and its members can support KIPO in its valuable enforcement actions?
Counterfeit goods should be eradicated. They discourage investments, hinder the creation of new inventions, and have a bad effect on the economy. Prior to September 2010, there was no organization in Korea exclusively responsible for investigating and cracking down on trademark-related offenses. KIPO's crackdown activities were limited to issuing corrective warnings or taking legal action against counterfeiters.
The introduction of the Special Judicial Police Authority at KIPO in September 2010 means we are no longer a paper tiger. We can clamp down on the circulation of counterfeit goods in a more systematic and efficient manner. The new authority is the only investigatory body in Korea dedicated solely to trademark-related offenses. It endeavors to eradicate counterfeit goods through its own crackdowns and through cooperative works with other related organizations. The authority currently has offices in Seoul, Daejeon, and Busan. It has a total staff of 19.
The efforts of the Special Judicial Police Authority are focused on the online and off-line circulation of counterfeit goods. The authority has strengthened the apprehension of repeat offenders and intensified crackdowns at counterfeit hotspots. It has also enhanced cooperative ties and conducted joint crackdowns with relevant organizations, such as the Korea Customs Service, the Prosecution Service, the National Police Agency, and local governments.
The introduction of the Special Judicial Police Authority led to a tenfold increase in the number of confiscated counterfeit goods last year. Before the authority was established in September last year, the number of confiscated goods from January to August was only 2,860. By the end of the year, however, the number had soared to 28,629. This is actually a twenty times increase considering the authority had operated for only four months until then.
To more effectively crack down on counterfeit goods, we need further cooperation from trademark holders and other relevant groups. It would be helpful, for instance, if the IP Center of the EUCCK could provide the Special Judicial Police Authority with detailed information on any online and off-line distribution of counterfeit goods and offer the staff at the authority a training course on how to distinguish genuine and counterfeit goods.
Many Korean firms are now focusing on R&D investment as a route to long-term growth. In addition, Korean brands and design are becoming increasingly popular throughout Asia and the world. What efforts is KIPO making to promote innovation and creativity, in particular those of SME's?
Nowadays Korea is blessed with a world-class manufacturing industry in a variety of fields. The government and private enterprises have invested heavily in R&D to ensure this trend continues for a long time. In 2009, R&D investments in Korea constituted 3.56% of our GDP. That's the fourth highest proportion in the world.
KIPO has contributed to this state of affairs by helping enterprises protect their R&D outcomes as IP. As a result, Korean products have become increasingly popular throughout Asia and the rest of the world.
Small and medium-sized enterprises in Korea often need help in the areas of innovation and IP creation. To meet this need, our office runs 31 local IP centers to encourage them to create their own IP. The centers offer consultations on patent management as well as on brand and design strategies.

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Interview: Mr Rong Ren, Managing Director & CEO, Harvest Capital

Currently managing about $1.8 billion in five funds and generating returns of over 20% IRR, Harvest Capital Partners brings together an unparalleled cross-border and cross-disciplinary team of property investment professionals. With the backing of its majority owner, it is uniquely positioned to identify and capitalize on prime and off-market transactions in China’s dynamic property development market.
The company was named “Asia Firm of the Year” by PERE magazine in the Global PERE 2010 Awards and "Property Investor of the Year - China" by The Asset magazine in the 2010 Triple-A Investment Awards. These awards are among the most prestigious accolades for the global private equity real estate industry.
Mr Rong Ren, Managing Director & CEO, Harvest Capital, spoke to us about the company’s goals and his perspective on the Chinese property market.

Could you give us a brief background on your company?
Harvest Capital Partners is a boutique investment firm that specializes in real estate investment funds focused on Greater China. We have a solid track record in the full property investment cycle, from raising capital and developing properties to managing these assets, exiting from our investments and returning capital. We are one of the few China real estate investment managers that can say that we’ve delivered 20% IRRs for our investors since 2006.
The approach we take is based on a disciplined investment model, incorporating an absolute return, value-driven strategy, to achieve medium- to long-term capital appreciation for investors. What makes us different is our hybrid-business model, in that we not only invest capital but also get actively involved in developing and managing properties. This allows us to add significant value to our projects, which we would not be able to do if we were simply passive investors.
Our portfolio of real estate funds is focused on selected regional cities, which have a large population base, high economic growth and rapidly increasing per capita disposable income.
Based on these criteria, we invest in the Bohai Gulf Region, Yangtze River Delta, Shandong Peninsula, and the Pearl River Delta, including Hong Kong. We are committed to creating maximum value for all of our investments by providing expertise from land acquisition, project development through to asset and portfolio management.
Our investments cover a focused array of asset classes, covering residential and retail properties, office buildings, hotels and serviced apartments. Specifically, we target assets that are unique either in terms of location or where significant value can be created and enhanced through refurbishment, repositioning, development or redevelopment, thereby capitalizing on the strong demand for asset dispositions in China.
Another strong advantage we have is the full support of China Resources Group, which gives us unparalleled access to a strong network in both first and second tier cities in China, where demand is fuelled by urbanisation and strong fundamentals in a rapidly growing economy.
Our entire team is passionately committed to these principles, and we all take our fiduciary responsibilities to our LPs very seriously. Being a member of ANREV is also important as it helps us pursue best practices in the funds management industry and increase transparency for our LPs. We manage capital on behalf of others, so we understand the need to manage our investment risks carefully in order to achieve the best possible returns.

What is your investment strategy and what asset classes do you think are providing the most promising returns? What cities have the biggest upside potential?
It is sometimes misleading to think of China as one market. Depending on our investors' risk appetite, investment horizon and objectives, we look to tailor specific investment strategies for them.
For example, while there is a lot of media attention on the government’s efforts to cool down the residential market, we feel this is a good time to invest. Various developers are facing liquidity constraints because of the government measures, and we are starting to see good deal flow in the residential sector.
Based on our market read at this point in time, we are looking at:
Mid-market retail in Tier 2 and Tier 3 cities in China, which are benefiting most from the urbanization trends and supported by strong retail consumption
The affordable housing sector, which is currently being supported by governments at all levels
Selected office investments in Tier 1 and Tier 2 cities, which will benefit greatly from the increasing long term capital that is emerging in China's capital markets
Selected mixed use developments on an opportunistic basis, and
Guaranteed yield products backed by high credit quality developers.
So as you can see, the opportunities and deal flow in China remain strong and Harvest Capital is well placed to continue to offer our LPs — both foreign and local — investment opportunities that fit their risk appetite and investment objectives.

There is an on-going debate among industry experts on India versus. China. What are the major differences?
We're not qualified to comment about the opportunities in India, as our mandate and expertise is primarily in China. I'm sure both countries offer excellent opportunities as their overall demographics are quite similar.
However, based on discussions with investors, I see one key difference being the Chinese government's efficiency in planning and encouraging a sustainable investment market through clear regulation, building infrastructure that supports property investments, and establishing a market environment conducive to making a decent return.
The government coordinates its planning very well and makes it easy for investors in China to see its intentions. For example, this year's 12th five-year plan is quite clear about social development, stimulating domestic consumption, reducing the income gap, promoting environmental awareness and increasing the value of China's industries. Hence, as an investor in this market, you can anticipate what strategies are sustainable over the coming years and plan accordingly. I think that's a huge advantage.

There is a stiff competition among foreign and local fund managers try to raise capital for China. What sets you apart from other players?
The Chinese market is full of opportunities, if you know where to look. There is also plenty of room for competition, which we feel is good for the development of the market.
Harvest Capital is different from most private equity real estate players in the market as we are truly local. Being part of the China Resources Group, a State-owned Enterprise, also has its advantages. Our networks and pipeline of opportunities are genuinely deep. All of our investments are sourced off-market, and our key focus is to buy into investments at a reasonably low cost. What’s more, having an extensive footprint in the country gives us access to proprietary research and information not available to others.
As a local player, China's real estate market is not opaque to us and we are able to make informed decisions when we assess investments in different cities. Another key difference is that we have a hybrid business model with significant asset management capabilities. We're not just a financial investor.
The team at Harvest Capital is also very experienced, bringing together both local and foreign expertise within an international best practice framework.
All of these factors resonate with our investors and the industry, which I think accounts for us receiving the award from The Asset magazine and being the first Chinese firm to win Asia Firm of the Year at the Global PERE Awards.

What are the best market entry strategies as a foreign investor?
I think some investors underestimate the partnership risks in China. We advise anyone looking to invest in China to find a suitable local partner. China is still a market that requires significant local expertise, due to the general lack of transparency and the sheer geographical scale.
It remains challenging to invest directly in China but having a good local partner will help smooth over "local" issues. Even more importantly, investors should look at China as a long term investment destination.
At Harvest Capital, we try to build long-term relationships that add value to our partners in numerous ways, such as utilizing our asset management capabilities to increase returns. We can also bring our networks and relationships to the partnership, such as tenant relationships, government relationships or banking relationships. Essentially, we can act as a "bridge" between our investors and China, and our LPs can look to us to manage the local risks as best as we can, leveraging on our expertise to deliver the best possible risk adjusted returns.

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