Korea public officials' fund sees $200 mn allocation to cat bonds, private debt funds in H2

South Korea’s Public Officials Benefit Association (POBA) is most likely to select global asset managers to invest about $200 million on aggregate in catastrophe bonds and private debt funds in the second half of this year, a POBA source said on Feb. 15.

Of the planned $200 million allocation, over $100 million will be deployed to private debt funds, and the remainder will go to cat bonds later this year.

The new investment will come after it finalizes the selection of five asset management firms later this month to allocate $120 million to offshore private debt investments. Last June, POBA committed a total of $100 million to Benefit Street Partners, Babson Capital Management and Permira for private debt investments.

“It takes less time than private equity funds to redeem investments from cat bonds and private debt funds,” the POBA source told the Korea Economic Daily. “They do not offer high returns compared with other asset classes. But because of their relative stability, they are a suitable alternative asset class for a savings fund which does not have enough fixed-income exposure.”

The $8 billion retirement fund for South Korean government employees had begun cat bond investment last year by committing $40 million on aggregate to three private equity firms - LGT Capital Management, Leadenhall Capital Partners and Nephila Capital. It became the first South Korean institution to invest in the debt instrument.

With the cat bond investments producing good returns, it could increase its commitment to new cat bond managers this year, according to the source.

In regards to private debt investment, POBA is trying to diversify its US-focused portfolio into Europe.

POBA is planning to allocate about $500 to $600 million to new alternative investments this year, including offshore real estate and infrastructure secondary funds.

“If they show little differentiation, we may opt for those whose fund closing is imminent,” said the POBA source, referring to overseas alternative investment firms.

By Donghun Lee

Leedh@hankyung.com