Pension funds eye bargains in equities and bonds; alternatives on hold

A number of South Korean pension funds are looking to hunt for bargains in the battered equity and bond markets, while postponing investment in infrastructure and private equity and debt funds on rising default risks.

As mark to market losses led to a sharp fall in the proportion of equities and bonds of their portfolios, the Korean Teachers’ Credit Union (KTCU) and the Public Officials Benefit Association are looking to put their cash hoard into the traditional asset markets, according to their sources.

The Dow Jones Industrial Avearge is down 24% since the beginning of this year as the coronavirus pandemic sent global stock markets into a tailspin. The benchmark KOSPI has lost 25% from a peak hit in late January .

In Korea, the 10-year government bond yield climbed to 1.7% last week, gaining 40 basis points since the beginning of this month. The spread between the 10-year and three-year yields widened to as much as 60 basis points.

For alternative investment, the Construction Workers Mutual Aid Association has recently postponed a plan to commit $25 million to a global infrastructure lending fund.

An KTCU source said that the $30 billion fund has temporarily halted investment in domestic private equity and venture capital funds to which it had committed 890 billion won ($727 million) in 2019.

The National Pension Service (NPS) scaled back commitment to domestic PEF and VC funds to 950 billion won from last year’s 1.2 trillion won.

The Teachers’ Pension also put off due diligence work and examination on a PEF to which it had planned to commit 150 billion won.

But renewed interest in traditional assets may not mean that money earmarked for alternatives will be funneled into equities and bonds.

Some retirement funds are even considering lowering the proportion of equities and bonds so that they do not have to chase bargains during market downturns.

“Alternative assets seem to suffer valuation losses with a time lag, too. But this would rather provide an opportunity to increase exposure to alternatives over the long term,” an alternative investment source told the Korean Investors on March 30.

Write to Hyun-il Lee at hiuneal@hankyung.com


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