National Pension Service Develops World's First 'Niche Real Estate' Global Index

The National Pension Service (NPS) has expanded the base of real estate investment by developing the world's first global index for niche and non-core real estate sectors, which have not been actively invested in.

The Fund Management Headquarters of the National Pension Service announced on the 2nd that, in collaboration with FTSE Russell, a subsidiary of the London Stock Exchange Group, it developed the 'FTSE EPRA Nareit Developed Extended Opportunities RIC 6/45 Capped Index' (hereinafter referred to as the new index), which has been used as a global index since November last year.

The new index was designed to complement real estate portfolios focused on traditional sectors such as office buildings and retail facilities like department stores.

Departing from the methodology of the existing real estate index, FTSE EPRA Nareit Developed Indexes, it provides customized services by segmenting the components in detail.

This index is offered to various clients in the real estate market, including the National Pension Service.

The new index is characterized by being designed exclusively with niche and non-core sectors, excluding traditional sectors.

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Data centers, self-storage services, nursing facilities, life sciences research facilities, forests, single-family homes, prefabricated houses, hospitals and medical facilities, and student dormitories are included in the niche and non-core sectors.

Niche and non-core sectors are considered new investment destinations due to their higher growth potential compared to traditional real estate and their low correlation with economic cycles.

Despite high market interest and demand, investment had been sluggish due to the lack of an index that could be used as a benchmark (a standard return rate for measuring operational performance).

The National Pension Service requested FTSE Russell to develop an index for niche and non-core sectors, and as a result, the new index has been provided as a standard index by FTSE Russell since November 2022.

With the provision of benchmark solutions for niche and non-core sectors, market participants’ investment accessibility has increased, and performance evaluation has become possible.

Kim Ju-seong, the lead portfolio manager who played a key role in developing the index, explained, "There has been demand for comprehensive investment exclusively in niche and non-core real estate sectors. For this, a definition of the sectors and a benchmark for performance evaluation were necessary, which led to discussions on development."

The new index is expected to contribute to improving returns along with the National Pension Service’s advantage in preemptively entering the niche and non-core real estate market.

The National Pension Service plans to execute a $1 billion real estate portfolio diversification strategy using the new index.

Meanwhile, the new index includes 70 components listed in 10 countries including the United States, the United Kingdom, Australia, Belgium, Canada, and Singapore, and shows a dividend yield of approximately 4.05%, based on the 12 months ending March 2023.

Seo Won-ju, head of the Fund Management Headquarters, said, “The new index will play an important role in diversifying the National Pension Service’s real estate investment portfolio. We expect it to timely secure investment opportunities in niche and non-core real estate sectors and contribute to improving the medium- to long-term risk-adjusted returns of the investment portfolio.”

This content was produced with the assistance of AI translation services.