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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Eating Live Octopus in Korea

Check out this video...
I have not had the courage to try it out so far!!!

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Foreigners in Korea: Koreapass is giving free 50,000 won shopping cards!

Want to get a free 50,000 won shopping card? If you are a foreigner, living in Korea for less than a year, hurry up and apply to Koreapass.
As this article notes:

One hundred foreign residents here will be selected this month to become monitors of ``Korea Pass,’’ a prepaid card designed for foreign tourists, as part of the Korea Tourism Organization’s (KTO) efforts to promote its use.
If selected, foreigners will be given a 50,000-won ($45) prepaid card from the state-run tourism promoter and be allowed to spend the money at department stores or other hospitality-related businesses of their choice. All they have to do is to fill out a one-page questionnaire later about their shopping experiences.
KTO is accepting email applications from those who are interested in becoming monitors at koreapass@knto.or.kr through March 13. An application form can be downloaded at www.koreapass.or.kr [NOTE: JUST LIKE ALL KOREAN WEBSITES, YOU CAN ACCESS IT ONLY BY USING INTERNET EXPLORER! NO WONDER THE NORTH KOREANS ARE ABLE TO REGULARLY HACK THEM!]

Those selected will receive the card by March 18 and spend the money through March 31. Monitors will then be required to submit a questionnaire by April 8.
Card users can receive up to 30 percent discounts at department stores, tourism spots, museums, theaters and restaurants in Seoul and Busan. They include Chongdong Theater, Lotte Mart, Seven-Eleven, Angel-in-us Coffee, Lotte Duty Free, T.G.I. Friday’s and TomaTillo.

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Interview: Mr. Lee Jung-whoon, General Manager, Finance & Investment Dept., Korea Asset Management Corporation

has been making contributions to the national economy by helping overcome crisis and develop the economy through various supporting measures for the financial industry.
Nonperforming loans (NPLs) were at the heart of the financial crisis that engulfed the Korean economy during 1997–98. The recovery has also been characterized by a rapid and drastic reduction in the level of NPLs in the financial system.
The government played a leading role in financial and corporate restructuring, including strengthening the legal and regulatory framework, injecting public funds, and reinforcing the functions of nstitutions for crisis management, such as the Korea Asset Management Corporation (KAMCO).
KAMCO played an important role in facilitating the restructuring process and helping to develop financial markets. First, KAMCO purchased distressed assets from banks and other financial institutions, which allowed lending to resume at a time when liquidity was scarce. This objective was complemented by increased supervision to ensure that banks were operating on sound commercial principles.
Second, KAMCO’s resolution of NPLs contributed to the good progress made in Korea in recovering public funds injected by the government for financial sector restructuring. In addition, KAMCO disposed of many of these distressed assets through a number of innovative methods, including by issuing asset-backed securities (ABS), which launched an important new market in Korea.
Mr. Lee Jung-whoon, General Manager, Finance & Investment Dept., KAMCO, speaks about the crucial rope played by the organization and its role ahead.

Could you give us a brief introduction to KAMCO?
Since its inception in 1962, Korea Asset Management Corporation has been making contributions to the national economy by helping overcome crisis and develop the economy through various supporting measures for the financial industry.
During the Asian Financial Crisis in 1997, the national economy was facing the Asian economic crisis. In order to efficiently resolve non-performing loans (NPL) of financial institutions, KAMCO formed the NPL Resolution Fund of 39 trillion dollars, and acquired 111 trillion won of non-performing loans. And since 2009, with a view to proactively coping with global financial crisis, KAMCO has been operating the Restructuring Fund, as a full-time organization for restructuring process.
In addition, KAMCO is in charge of government-commissioned work such as state-owned property management, collection of overdue taxes, and assistance for consumer credit recovery. After the incumbent CEO Young-chul Chang took office, we categorized domestic properties into three: state-owned, financial, and credit properties. KAMCO is trying its utmost in managing all three categories as a comprehensive asset manager of the properties owned by the Korean government.
What is the performance of the NPL Resolution Fund and the Restructuring Fund like?
Using the NPL Resolution Fund, we collected 6.2 trillion won additionally to the amount of public fund invested, by acquiring non-performing loans of the face value of 111 trillion won and resolving 71% of them up to now.
In this process, we also converted some of the non-performing loans into equity, transforming them into blue-chip companies and selling them in the market. Some noticeable examples include Daewoo Heavy Industries & Machinery Co., Dongah Construction Industrial Co. Ltd., and more recently sold Daewoo International.
With lessons learned from the Asian economic crisis, we were able to proactively deal with the recent global financial crisis, by early establishing the Restructuring Fund. Since 2008, we have purchased PF bonds of 8.5 trillion won, swiftly and actively responding to the destabilizing factors of the financial market. In order to support shipping industry in liquidity crisis, KAMCO formed a shipping fund, having purchased 27 ships (worth of 860 billion won) so far.
We understand that your department is responsible for KAMCO’s overseas business. What are the progress and future plans?
KAMCO’s overseas business was launched with the mandate of assisting private sectors in overseas market creation and creating future growth engines of KAMCO, utilizing various domestic and international networks and experiences learned from the post-crisis process of resolving 111 trillion worth of NPL and performing corporate restructuring.
Investment preparedness provided through the revision of law to enable direct investment between 2005 and 2006 triggered full-scale implementation of the overseas business.
In the first round, in 2007, KAMCO acquired properties from a Chinese state-run AMC, followed by the successful investment brokerage in 2008. Afterwards, KAMCO established a local AMC with dispatched staff, and has been in full operation for management and collection.
Our view on the market indicates that, after the global financial crisis, it is high time for us to enter the NPL markets of advanced countries including the US. We are thus currently cooperating with domestic and overseas institutions to screen blue-chip investment grade targets.
This year has goals of exporting KAMCO Model, which is business knowhow accumulated through our on-going training and consulting business for developing countries, and successfully implementing pilot deals of investing in NPL in advanced countries such as the US.
Does it mean that KAMCO is also offering training for overseas institutions?
Yes. Since 2001, we have been providing training courses on our knowhow of NPL resolution and restructuring process, accumulated through overcoming the Asian economic crisis, for many governments such as China, India and Vietnam.
A total of 22 rounds of training courses have been completed, with a purpose of maintaining close relationship with organizations of other countries. In addition, we have concluded MOUs with 17 government organizations from 11 countries, contributing to the heightened international status of KAMCO.
Recently, local pension funds have been showing great interest in US real estate market, with some investment projects already initiated. What is impressive is the speed of the movement by public corporations. Do you have any experiences in the US market? What are they about?
There has been a series of prospects that says the US market shows a sign of recovery starting with the corporate sector, as recently seen in the continuous increase of corporate fixed investment. Both IMF and many IBs are competing in upwardly adjusting future economic growth rate assumptions.
However, a general consensus of the international financial community is that it will not be easy for a huge market like the US to recover in a short period of time. Examples include the increasing non-performance of commercial assets and continued bankruptcies of small-and-medium-sized banks.
KAMCO has also been monitoring the US market for investment ever since the financial crisis, with some cases almost striking the contract. But basically we are still focusing on risk management based on conservatism.
For example, it was in 2008 when we were conducting a preliminary underwriting for the purchase of a 450 million dollar portfolio owned by a global IB, reaching the stage of price negotiation. It was late August. The seller insisted that the asset price was almost bottoming out, but our underwriters said that there would be further dip of about 15% or more. Obviously, the deal was not possible to be closed.
After the failure of negotiation, our underwriting team backed out. And on the 15th of September, Lehman Brothers declared bankruptcy, suddenly elevating the financial risks all around the world, ultimately causing steep rise of foreign exchange rates in Korea and aggravating the investment environment.
So, it turned out to be a good thing that you had to break the deal?
Sure. The asset value was plummeting afterwards, as we had anticipated. And the foreign exchange rate increased by almost 50%. Even if the price was successfully negotiated, it must have been difficult to close the contract.
That was a very clear example of risk management. Also in 2009 and 2010, we had some cases of reaching the point of price negotiation, but we had to use our conservative stance again, believing that there was a possibility of further price drop.
Could you explain the nature of the investment business of KAMCO?
Our target focuses not only income generation but also assistance for the private sector in their overseas business. To do the latter, we are informing Korean institutional investors of high-grade investment targets and helping them with asset management.
Of course, to lead the overall deals, we also need to make some investment at the threshold level. We are also planning to establish JV-AMCs with local organizations, through which we can learn the systems of the countries to be invested and accumulate asset management knowhow. In China, where we had two deals closed, we have already established an AMC, gathering information on local investment systems and grasping the knowhow of asset management.
I am not saying that investment yield is not important. What I mean is that it is an important point of consideration that the intangible assets also need to be acquired at the same time. Domestic pension funds are also welcoming the business structure in which KAMCO participates in overall asset management.
The investment business will start from small-scale projects in advanced countries where the cycle is widely believed to be bottoming out. After making successful investment, we will expand the scale by phase.
First, we plan to start with selective high-grade investment targets out of troubled assets such as NPL or REO owned by local financial institutions. Currently, with a view to acquiring assets under bulk sale by FDIC, we are currently under joint consultation with an organization with successful bidding experiences.
There must be some difficulties experienced by a public corporation like KAMCO in dealing with IB business.
KAMCO has amassed a high international credit standing and credibility with fair business treatment, which are great advantages of our actual implementation of projects.
Currently, we have some difficulties in proactively exploring potential high quality projects, because of the limitation posed by the KAMCO Act, which stipulates that investment targets should be confined to the NPL Resolution Fund. However, we are planning to expand the target investments to the Restructuring Fund by amending the act.
And the issue of relatively long decision-making process as a public corporation could be substantially overcome by sharing roles with private counterparts.
Do you have any parting parting comments for our readers?
According to the IMF estimation, the total loss incurred by financial institutions worldwide amounts to 4,000 trillion won, with US and European markets alone at 2,000 trillion won.
When it comes to NPL markets of advanced countries, the barrier of entry used to be too high in the past. But, in a couple of years ahead, it is expected that opportunities will come for us to purchase high-quality assets at lower price. That might be a once-in-a-life-time chance, though.
We will do our best in actively and fully utilizing various experiences and rich networks of KAMCO, rather than neglecting them, so that KAMCO can be leading liquidity in the private sector toward more stable investment targets, thus contributing to the national wealth creation. This, I believe, is the true mission given to a public corporation.

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Interview: Mr. Richard Han, Managing Partner, Vestas Investment Management

Vestas Investment Management is a newly licensed Real Estate Fund management company authorized by the Financial Services Commission in September 2010.
In January, Vestas Investment Management announced that it has commenced capital raising for Vestas-Meritz Korea Real Estate Fund I . Vestas and its co-GP partner, Meritz Securities are participating for capital raising and fund targets country focused, core plus/value added and cyclical opportunities in the Seoul office sector. The Fund considers foreign pension fund/ fund of fund type investors with selective local pension fund investors with raising amount of USD 200~300 million.
Vestas is newly licensed Real Estate Fund management company authorized by Financial Services Commission (FSC) in September 2010. Key senior executives including Mr. Richard Han, Managing Partner, mostly joined from Macquarie Real Estate Korea (wholly owned subsidiary of Macquarie Bank) and other foreign private equity funds management company, where the team implemented global standard in investment, asset management, and divestment for past 10 years in Korea.
In an exclusive interview, Mr. Han speaks about the company and his plans for the year.

Could please you give us a background about Vestas Investment Management?
VIMC was established in 2010 and authorized by Financial Services Commission(FSC) as a licensed Real Estate Fund (“REF”) management company. Most key senior executives joined from Macquarie Real Estate Korea (a wholly owned subsidiary of Macquarie Bank) and other foreign private equity funds management companies with previous experience from several local and international groups such as JLL, Deloitte, and Daewoo.
I was managing director of both Macquarie Real Estate Korea and Ostara Korea Fund where I established a local team and built up 1.7 trillion won asset value of portfolio with current team. All transactions were high profile deals traded among major institutional investors and private equity funds such as RREEF, GE Real Estate, Lone Star, National Pension Service (NPS), and Samsung Life. Key transactions included acquisition of SK Securities, Tong-Yang Securities, and Daewoo Securities Building, Kukdong Building, ING Tower, Smart Plex, Pantech New HQ, and K1 REIT building and current team was leading the whole transactions from deal origination/execution, asset management and divestment.
Key milestones among these transactions include introducing first foreign managed CR REIT with underling asset of Kukdong building and two REIT establishment for National Pension Service where NPS invested 500 billion won of equity.
Vestas established global standard practice from previous foreign employers such as high standards of investment discipline, transparent governance, alignment of interest with investors, and reporting system. Capability to implement global standards for real estate investment and management is the key strength which would differentiate Vestas from other local fund managers.
A strong locally experienced real estate team with proven country and sector focused investment track records will be the key driver to source and execute private/off market transactions ahead of other players in the market and Vestas seek risk adjusted returns for our clients by carefully assessing potential investment opportunities and actively managing portfolios.

Where do you see the investment opportunities in Korea for 2011?
Korean real estate market is no longer an emerging market and it is now entering the stage of a stabilizing/mature market where investors should expect relatively lower return with low risk. Nevertheless, the market would look attractive to investors seeking stable yield with some capital appreciation.
We assess commercial office building sector to be still attractive (1) most liquid and (2) largest real estate holdings in a typical Korean company’s balance sheet. Some development type office take-out projects where developers having financial difficulties to continue and complete could be potential investment opportunities. Retail sectors could have opportunities where big discount store operators have an appetite for sale-lease back type divestment of existing assets for their continuous expansion requirements. Stable yield backed by quality credit of operators will provide investment opportunities.
When the market is tightening and investors have difficulty to find out attractive deals, that does not mean investors will not get attractive deals in the market. There are fund managers in the market who have hands-on experience and who have the capability to source and execute potential deals ahead of other players in the market. As long as investors assess the Korean real estate market to provide stable yield generation opportunities supported by strong fundamentals of the economy, the country should still be considered for future investment allocation.

How do you compare Korea with Japan, China, Hong Kong, Singapore? Why should foreign investors invest into Korea?
As just mentioned earlier, even when the Korean real estate market is tightening and therefore can’t enjoy high returns as was the case of 3~5 years ago, Korea still has its competitiveness compared with other Asian countries. I would like to limit my comments to the commercial office building sector.
First, fundamentals of Korean economy are strong and stable compared with other Asian countries with constant 4~5% GDP growth even after the global financial crisis. Second, many investors always consider Japan or China first in Asian Market in terms of capital allocation mainly based upon market volume with some other factors. In fact, China is still a growing market but it is also understood that investors should not ignore transparency/consistency in government policy and potential bubbles. Although all the investment environment of Japan might be more open to foreign investors and we see a lot bigger transaction volumes compared to other Asian countries, current slow economic situation would not make it easy to justify any investment commitment. In that sense, Korea has a very transparent investment environment with predictable/ stable income generating asset pools, although the target return is getting lower. Third, even though many investors are concerned about vacancies due to scheduled increasing supplies in Seoul market, this could generate buying opportunities in return as there could be pressured sellers. Historically, Seoul office market vacancy has been so low and stable and even when vacancy increases due to increasing supply, we don’t expect to see dramatically rising high vacancies like 20%~30% as some other Asian countries experienced before. In the case of total occupancy cost, Seoul grade A office still ranks lower than other major cities such as Tokyo and Hong Kong.
To conclude, I would like to say that as long as fund managers are more creative and more proactive ahead of other players based on hands-on local experience, there are good investment opportunities where superior risk-adjusted returns could be achieved. In particular, if investors are interested in stable yield generation with some capital appreciation, the Seoul office market is still attractive to investors.

Why are there only two Korean country-specific funds so far in Korea?
Although there are quite a few Pan-Asia regional type foreign managed funds, there are only two country focused private equity fund managed by foreign managers in the market. When most Pan Asia funds were raised, I understand Korea always has had relatively lower weighting in terms of capital allocation and fund managers did not have interest to launch country focused funds.
Having said that, if you look into Korean real estate market, when the market was open to foreign investors in late 1990s after the Asian financial crisis, real estate investment market grew substantially and now we see active investment grade /institutionalized transactions. In addition, based upon many transactions led by foreign investors, global standard practice is now quite common in Korea.
Even if many regional funds could still cover Korea for future investment, it could be more effective to have country focused fund managers to implement transparent and sophisticated investment management when real estate investment business anyway should be locally driven in various aspects. Many pan Asian type regional funds also happened to reduce or shut down their presence and operation in Korea recently due to restructuring after the recent financial crisis and it could be a good opportunity for investors to consider country focused funds and enter the Korean market.
In particular, when selective local fund managers now have hands-on experience with proven track record and when these fund managers can implement global standards for investment and management, we should see more private equity fund type business opportunities in Korea.

Why is Vestas trying to introduce a private equity fund business model in Korea (targeting not only foreign LPs but also local LPs) when most local fund managers just raise capital from local investors on a project basis when the deal is secured?
Many local fund managers know private equity fund business model is quite effective and competitive because fund managers can secure certain deal ahead of other players when there is committed capital from investors. Nevertheless, most local fund managers didn’t explore this type of business model for several reasons. First, local investors don’t prefer to commit in the blind pool type private equity fund and therefore local fund managers have not explored this business model with local investors. Second, most local fund managers do not have experience working with local or foreign investors in the form of private equity business model, either.
As far as local investors are concerned, it is a matter of how fund manager could give comfort to them in relation with investment decision making process when local investors are not used to giving discretion for investment decision to fund manager in the blind type fund. Vestas has some creative ideas to resolve this with potential local investors and that is why Vestas would like to challenge local investors’ commitment into private equity fund.
In addition, local investors would be more serious in this type of blind pool private equity fund if they see credible foreign LPs committed in the fund. We also understand many local institutional investors have ever increasing appetite and need to outsource their funds management to third parties as is the case in many developed countries in line with increasing demand for alternative investment (in particular real estate) allocation. Many institutional investors realize they cannot manage their portfolio in house with limited specialized professionals forever.
Vestas have built up strong global standard practice know-how to manage private equity fund business. In that sense, we are ready and open to any local or foreign potential investors for potential private equity fund management business opportunities in Korea. We should challenge more opportunities to introduce foreign investors and local investors into this type of business structure which could be mutually complementary and beneficial to local and foreign investors.

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