Korea construction workers’ fund may allot $170 mn to alternatives in 2016

The Construction Workers Mutual Aid Association (CWMA) in South Korea is looking to overseas alternative assets to invest as much as 200 billion won ($173 million) this year, as the $2.6 billion fund plans to double the proportion of alternative investments in its total assets within the next three years.

The savings fund is interested in core office buildings, renewable energy projects in Europe and non-performing loans, targeting a 5~6% internal rate of return on alternative investments a year, said Sang-min Lee, head of the CWMA’s alternative investment division, on June 21.

“We will increase the proportion of alternative investments from the current 6% of total assets to 12% within the next three years,” he told the Korean Economic Daily. “We can commit as much as 200 billion won to alternative investments this year and we are principally looking to overseas alternatives that generate higher returns than domestic ones.”

Earlier this year, the fund invested about 10 billion won in an office building in Sydney, Australia, in a joint investment with South Korean institutions, including the Korean Federation of Communitive Credit Cooperatives. Woolworths, a top supermarket store chain in Australia, rents the building.

CWMA oversees 3 trillion won ($2.6 billion) in assets on behalf of 4.6 million members engaged in the construction industry.

It expects the property investment in Sydney, which was its first real estate deal in three years, to yield a 6.5% internal rate of return.

On real estate investments, the fund is interested in buying a stake in “core office buildings” that have a long-term lease contract, as well as extending loans to office buildings.

In the infrastructure sector, CWMA is interested in renewable energy funds in Europe which are expected to provide a long-term investment opportunity, and non-performing loans to achieve higher returns.

At home, CWMA is looking to corporate M&A financing deals and considering investments in logistics centers. Around the second half of this year, it may commit capital to a private equity fund, although no specific deal is not in consideration at the moment, said Lee.

“As we were cashing in our investment in a real estate development project we had made after 2007, we had hardly made new alternative investments in the past three years,” he said. “Now we are in the final stages of the redemption, we are reshuffling alternative asset portfolio from the start of this year.”

Prior to joining in the CWMA in 2011, Lee had worked at the National Pension Service and took charge of risk management and overseas alternative investments. At the CWMA, he has worked on equities investment and risk management before heading the alternative investment division.

Using his experience in overseas investments, he is in direct contact with global asset managers sometimes, not via domestic investment firms.

“On attractive real estate investments, I will make a visit to the site personally,” said Lee.

 

By Dae-hun Kim

daepun@hankyung.com