Korea's major LPs to focus on core assets in US and Europe

The chief investment officers of 10 South Korean major limited partners (LPs), including pension funds, mutual aid associations and life insurance companies, plan to increase their proportion of overseas alternative investments while reducing the ratios of stocks and bonds in their portfolios, showed a survey by The Korea Economic Daily’s market-focused media Market Insight published on Nov. 9.

INCREASE ALTERNATIVE INVESTMENT PROPORTIONS
 
The seven pension funds and mutual aid associations – The National Pension Service (NPS), The Teachers’ Pension (TP), The Military Mutual Aid Association (MMAA), Public Officials Benefit Association (POBA), Korea Teachers’ Credit Union (KTCU), The Yellow Umbrella Mutual Aid Fund and The Korea Post’s postal savings arm – said they will increase alternative investments, of which their combined size is estimated at 155 trillion won ($131.8 billion) this year, to 186 trillion won next year. 

Three major life insurance companies – Samsung Life Insurance Co., Kyobo Life Insurance Co. and Hanwha Life Insurance Co. – also said they will expand alternative investments from 75 trillion won in 2021 to 77 trillion won in 2022. In total, the 10 institutional investors’ alternative investment is expected to increase from 230 trillion won this year to 263 trillion won next year.

NPS, the world’s third-largest pension fund with assets under management of 930 trillion won, is leading Korea’s alternative investment. The pension fund plans to increase its proportion of alternative investment from the current 10.5% of its portfolio to 15% by 2025. 

MMAA, managing 13 trillion won in assets, will expand its alternative investment from 68% to 72% next year. "Expanding allocations for alternative investment in our portfolio is inevitable given economic fluctuations and global market trends. We will continue to increase the proportion of alternative assets to 76% of the portfolio by 2025,” said MMAA CIO Sang-hee.
 
The Korea Post's savings arm, TP and Yellow Umbrella, managing 84 trillion won, 21 trillion won and 15 trillion won, respectively, also said they will expand their alternative investment proportions. While KTCU and POBA said they will maintain their current alternative investment proportion snext year, the two LPs’ alternative investment size will expand in line with an increase in their total AUM. 

Samsung Life plans to increase the proportion of its 31 trillion won in alternative investments from 16.5% to 18% at most next year and to 20% by 2025. Kyobo Life, managing 25 trillion won in alternative assets, and Hanwha Life, managing 21 trillion won in the asset class, also said they will slightly increase the proportion of alternative assets in 2022.
 
EYEING OVERSEAS ALTERNATIVE ASSETS
 
Some LPs said they plan to expand their overseas alternative assets. POBA CIO Jang Dong-hun said the institutional investor will increase the proportion of its overseas alternative investments from 65% to nearly 70%. Yellow Umbrella CIO Lee Do-yoon said the mutual aid will increase the overseas alternative asset proportion from 35% to 40% next year.

The LPs will focus on the US and European markets. TP said it intends to increase its overseas alternative asset proportions, currently 50% in the US and 30% in Europe. NPS said it is looking for infrastructure and real estate investment in some core and core-plus areas, such as major metropolitan areas, of North America and Europe.

"We see data centers, semiconductors, emerging digital platforms such as the metaverse and related technology industries as promising in the US. On the other hand, we’re planning and reviewing some investments in multifamily assets in Europe,” KTCU CIO Ho Hyun Kim said. Yellow Umbrella said it is considering incorporating aircraft as an alternative investment asset next year as it sees aircraft prices undervalued in the COVID-19 era.

Hanwha Life said it is interested in overseas private equity funds and private debt funds. Kyobo Life is considering investments in logistics centers, data centers and the environmental, social and governance (ESG) sector while Samsung Life said it is reviewing investments in ESG and digital infrastructure.

Write to Jae-fu Kim and Jong-woo Kim at hu@hankyung.com
 

Jihyun Kim edited this article.