Private debt remains attractive; NPLs rekindle interest

Private debt remains attractive for South Korean pension and big asset owners, although they may offer lower yields than before given recent interest rate cuts by major economies. 

Still, private credit and lending are expected to outperform other asset classes for some time as the US Fed and other major central banks will likely lower interest rates in a measured manner, said chief investment officers and alternative investment heads of Korean pension funds and insurance companies.

Some of them picked non-performing real estate loans as new assets they want to add next year.

“Bond yields are expected to decline due to falling interest rates, but we do not expect an immediate economic recession or a sharp interest rate cut," Cho Yunsam, overseas alternative investment team manager at Kyobo Life Insurance Co., said during a limited partner panel session at the global investment conference ASK 2024 on Wednesday.

"I think private debt will remain attractive in terms of risk management and return. We will maintain our private debt portfolio at the current level,” he added.

Last week, the Bank of Korea lowered its benchmark interest rate by 25 basis points to 3.25%, marking its first rate cut since May 2020 and joining global peers on a monetary easing cycle.

“Private debt is one of our favorite assets. Now it has become a mainstream asset class, there are many asset managers with various portfolios we can access," said Suh Won Cheol, chief investment officer of KBIZ-Korea Federation of SMEs' savings arm Yellow Umbrella Mutual Aid Fund.

KBIZ will not make a drastic portfolio reshuffle next year, but will diversify within its private debt assets heavy on direct lending in Europe, the former alternative investment head of the Government Employees Pension Service noted.

NON-PERFORMING LOANS

Among private debt strategies, Lotte Insurance is considering raising exposure to non-performing loans (NPLs) and fixed income investments, as well as distressed assets.

“Bond yields are still not that bad," said Park Jaehyun, managing director of Lotte Insurance’s financial investment division. "Yields of Australian, UK and Japanese bonds are attractive, compared with domestic long-term yields. We will increase their proportion compared with domestic bonds'.” 

“The domestic construction industry has been in the doldrums with soured project financing loans. We’re looking for investment opportunities in real estate NPLs,” Park added.

Shin Minsik, CIO of Hanwha Life Insurance Co., said: “We are studying distressed debts and opportunistic investments for private debt. We are only chasing secondaries for private debt, private equity and venture capital.”  

Write to Yeonhee Kim at yhkim@hankyung.com
 


Jennifer Nicholson-Breen edited this article.