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Pension fund

[Interview] Korea local govts' pension hunts for bargains as valuation concern eased: CIO

By May 13, 2020 (Gmt+09:00)

The Public Officials Benefit Association (POBA) is shifting away from a defensive stance to put its increased cash to work as the asset price declines caused by coronavirus helped ease valuation concerns, said its chief investment officer Dong-hun Jang.

In the hunt for bargains, the $12 billion pension scheme for local government employees is zooming in on fixed-income, distressed and secondary investments in developed markets.

Over the past two years, it has reduced equity holdings to 14% of total assets from 24% at the end of 2017. Instead, it has increased cashable investments to 10.1% or 1.4 trillion won ($1.2 billion), versus 0.8% during the same period.

“After the 2008 financial crisis, National Pension Service made huge profits by scooping up assets on the cheap,” Jang told the Korean Investors in a recent interview. “But POBA had no cash to invest at the time.”


By asset class, it is targeting warehouses, residential housing and infrastructure such as telecommunications facilities and data centers that generate availability-based revenues.

In March, POBA put $240 million into overseas real estate investment trusts and mortgage-backed securities to take advantage of the financial market plunge.

Jang, a veteran fund manager with experience of 33 years, has been leading POBA’s asset management since November 2015. He began his second three-year term last year.

Meanwhile, Jun-ha Park, former deputy mayor of Incheon Metropolitan City’s administrative affairs, was named as new chief executive officer of POBA last week. He will serve out his predecessor’s remaining term until September next year.

For last year’s interview with CIO Jang, click here.

The following are Q&As with Jang.

Q. Where has POBA invested recently?

“We thought about the assets to which we had little access during the bull run of the past decade since 2008. We are aggressively investing in assets that are available only now.”

“We are using the so-called convergence strategy of investing in listed and unlisted assets. Depending on how we invest in it, the returns from the same asset will differ. We can invest in real estate in bond and stock markets through mortgage-backed securities and listed REITs, whose underlying assets are real estate and infrastructure.”

“Regarding REITs, their share prices have dropped in line with company stocks' falls because of their high correlation to stock markets. Some of their underlying assets such as hotels were hit by the Covid-19, but others were not. If we pick them selectively, we can find a good investment opportunity.”

Q. On risk management after the Covid-19 outbreak.

“It was of great help to have increased cash holding to about 10% of our total assets by the end of last year to cope with the (coronavirus) crisis. We increased the cash ratio from our typical level of 5-6% because the market seemed unstable.”

Q. Any reason that your saw market conditions unstable?

“I had not expected the Covid-19 but began to worry about the market from two to three years ago as the global economy entered a final phase in its cycle after a booming period.”

“Looking at traditional asset markets such as the US stocks and bonds, I was concerned about their overvaluation. It was the first time in history that prices across all asset classes rose at the same time. That looked unusual and I doubted if that was normal.”

“The S&P 500 index was up 30-40% a year, but earnings at S&P 500 companies were little changed year-on-year. Early this year, the stock index gained an additional 5-6%, so we cashed out some investments.”

Q. On risk management for alternative investments.

“When investing in alternative assets from three to four years ago, we studied the possible impact of a recurrence of the 2008 global financial crisis on that investment. Among real estate asset classes, we have invested in housing and those insensitive to economic cycles, and office buildings in core locations which tend to make a quick recovery.”

“Last year, POBA increased investment in residential housing in other countries. But we avoided investing in high-end condos and luxury apartments in New York because they are sensitive to economic cycles.”

Q. On investment opportunities.

“I can see opportunities. In the past, assets looked overvalued. But such valuation concerns have been eased substantially due to the Covid-19 fallout.”

Q. On alternative investment strategy.

“The coronavirus may cut returns from our previous investments. But if we continue to invest with consistent investment principles even in unfavorable situations, gains from new investments will offset the expected losses from the previous investments. The key is steady investing with consistent investment principles.”

“Among infrastructure assets, those running user-based systems such as toll roads, harbors and airports bore the brunt of the Covid-19 outbreak. Now it would be better to invest in infrastructure that generates availability-based revenues such as telecommunications facilities and data centers. Because these investments require expertise, we are looking for experienced management companies.”

“Among real estate assets, we need to continue to look closely at warehouses and residential housing. For investment strategy, we are considering fixed-income, distressed and secondary investments.”

Q. Any impact of travel restrictions on POBA’s overseas investment?

“Because we cannot conduct due diligence, we have difficulty in investing in single projects, so we are investing mainly in blind-pool funds.”

Q. Your top picks of industries and regions?

“Healthcare and cyber security for IT-related tasks look promising. For the time being, POBA will make diversified investment in developed markets which have transparency.”

Write to Hyun-il Lee and Dong-wook Kim at

Yeonhee Kim edited this article

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