Korea construction workers’ fund to pick two debt fund managers for $70 mn

(Corrected: The CWMA source on April 13 corrected the timetable of the planned debt manager selection to “soon”, and added that it has already begun the process of screening management firms. First and second paragraphs were corrected in that regard.)

The Construction Workers Mutual Aid Association (CWMA) in South Korea is planning to allocate 40 billion won ($35 million) each to a European private debt fund (PDF) and an overseas real estate debt fund soon, said a source of the association on April 13.

The CWMA source told the Korean Investors that it is in the process of screening management firms, without elaborating further.

It recently selected five domestic asset managers to entrust a combined 75 billion won for investing in private equity and venture capital funds. It is the first time for the $2.8 billion savings fund to commit capital to blind-pool funds.

Since the former domestic equity head of the National Pension Service (NPS) Jung-su Han took office as CIO last July, the fund under the Ministry of Employment and Labor has been diversifying into overseas and alternative investments beyond fixed-income assets which make up 77% of its total assets.

It is reportedly aiming to increase the proportion of alternative investments to 15% by end-2017 from the current 10%, in an effort to meet its targeted return of 2.42% this year.

In 2016, CWMA returned mere 1.95%, hit hard by a jump in bond yields following the election of Donald Trump. It is below the returns of 4 to 5% of other major South Korean pension and retirement funds.

South Korean institutional investors are piling into overseas private debt and real estate debt funds in search of stable returns with low risks.

By Daehun Kim

daepun@hankyung.com