Korean money managers look abroad to invest

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Korean money managers look abroad to invest

Korea Post is the latest money manager from the nation to set up shop in New York to find real estate, private equity and hedge fund investments, and may hire more people, its U.S. representative Chuljoong Jurng said.

It follows the National Pension Service and Korea Investment Corporation, which have similar offices, chasing better returns from global alternative assets amid low yields at home.

Four interest rate cuts over the past year have not been able to revive Korea’s economy, which is growing at the slowest pace in two years. The record-low benchmark has stifled returns on bonds, with the government’s 10-year yield shrinking to its lowest ever in April. The National Pension Service helped buy a Swedish shopping mall this year, while Shinhan Life Insurance and Hyundai Marine & Fire Insurance helped underwrite a $220 million loan to buy a Manhattan office tower.

“With the continued low interest rates, it’s inevitable we’ll need to increase alternative investments to boost returns,” Jurng said. “As our assets under management keep growing, it’s become more important to get access to information and global investment trends for higher returns.”

State-run Korea Post, which oversees 106 trillion won ($90 billion), wants to diversify from stock and bond investments into other sorts of assets, Jurng said.

He expects the new Manhattan office to improve deal sourcing and global research capabilities to help find such opportunities abroad.

Stocks and bonds are less reliable as hedges against each other, according to Kim Eun-gie, an alternative investments analyst at NH Investment & Securities.

While the securities’ prices have usually negatively correlated, they’re now moving in unison due to global monetary easing and that’s curbing the effects of diversifying, he said.

Korea’s asset managers have taken note. Their real estate holdings have surged 38 percent since the end of 2013 to 33.6 trillion won, Korea Financial Investment Association data shows.

Private equity funds raised 51.2 trillion won at the end of 2014 compared to 44 trillion won a year earlier as big pension funds raised private equity investment in a bid to expand alternative assets, Korea’s Financial Supervisory Service said in March.

Global infrastructure projects are also attracting Korean capital. In June, five investors including Lotte Non-Life Insurance plowed $180 million into a fund that will target hospitals and prisons in North America.

“There aren’t enough alternative assets at home, forcing investors to look abroad,” NH Investment’s Kim said. “Unlike bonds or stocks, alternative investments are typically private, so it’s become essential to open overseas offices to broaden access to information.”

Combined assets under management at Korea’s life insurance companies have almost doubled to 537 trillion won as of March 31 over the last five years as people save for retirement. By 2060, the elderly - defined as anyone over 65-years-old - will make up 40 percent of the population, Statistics Korea data shows.

Alternatives were the best performing asset class last year for the National Pension Service, Korea’s biggest investor with 470 trillion won of assets, returning 12.5 percent compared with a 5.25 percent overall gain.

The fund plans to boost holdings of such assets to 11.5 percent by the end of next year from 9.9 percent at the end of 2014, it said in June.

The National Pension Service, which has both London and New York offices, will also officially open a Singapore location in September to find Asian alternative opportunities, spokeswoman Hwang Ji-hye said. Bloomberg
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