POBA to increase long-term private credit investments

South Korea’s Public Officials Benefit Association (POBA) will step up its private credit and bonds until next year as it expects high interest rates to last for a while, said Chief Investment Officer Huh Jang in a keynote speech at ASK 2023 on Oct. 26.

The major institutional investor in Korea will look for private equity in secular growth industries rather than cyclical sectors sensitive to macroeconomic factors, the CIO noted at the biannual forum on global alternative investments.

POBA is a mutual aid for around 340,000 local government officials in Korea. Established in 1975, it manages 23.5 trillion won ($17.3 billion) in assets.

It has increased alternative assets since the mid-2010s to reduce the volatility of investment returns in the long term.

Alternative investments make up 77% of its whole portfolio, including 33% for real assets, 30% for private credit and 11% and 3% for private equity and hedge funds, respectively. Public stock and fixed-income account for 5% and 6%, respectively. 

“The impact on the real economy has deepened due to the higher-for-longer interest rates. The tech stock retreat shows cracks in complacency, and the recent geopolitical conflicts in the Middle East add risk. These are growing uncertainties in the financial market next year and beyond,” the CIO said.

“This increases the probability of further valuation adjustments for commercial real assets, which face refinancing risk. Corporates’ credit risk will increase, too. I believe the challenges will put an emphasis on risk management and also generate new investment opportunities.”

POBA has focused on private debt, which generates relatively stable income, thus reducing volatility of the entire investment portfolio.

POBA is expanding investments in high-yield bonds and private credit and carries the securities until their maturity. This is possible as the mutual aid has less burden for long-term asset liability management, compared with pension funds and insurance companies, Huh said.

It also increasing investment in collateralized loan obligations (CLOs), commercial mortgage-backed securities (CMBSs) in investment grades for liquidity, as well as listed real estate investment trusts (REITs) with high dividends, he added.

POBA aims to maximize the yield-to-maturity of its investments by taking advantage of high rates until next year. It will continue to bet on private credit and high-yield bonds while strengthening its credit risk management.

For private equity, it will focus on sectors with secular growth while looking for opportunities in special situation and secondary strategies, the CIO noted.

Write to Jihyun Kim at snowy@hankyung.com

Jihyun Kim edited this article.