South Korea’s biggest funds are hoping to get returns from Manhattan eluding them in Seoul.
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 National Pension Service and Korea Investment Corp., which have similar offices, chasing better returns from global alternative assets amid low yields at home.
Four interest rate cuts over the past year haven’t been able to revive South 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. National Pension Service helped buy a Swedish shopping mall this year, while Shinhan Life Insurance Co. and Hyundai Marine & Fire Insurance Co. 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, a Seoul-based alternative investments analyst at NH Investment & Securities Co. While the securities’ prices have usually been 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 show. Private equity funds raised 51.2 trillion won at the end of 2014 compared with 44 trillion won a year earlier as big pension funds increased investment in private equity 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 Co. 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 show.
Alternatives were the best-performing asset class last year for National Pension Service, South Korea’s biggest investor with 470 trillion won of assets. They returned 12.5 percent, which 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.
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.
“Overseas offices are playing a role in gathering new information and looking for valuable investment opportunities,” said Hwang. “We’ve been preparing for opening an office in Asia following the New York and London offices to build a strong overseas network.”
Korea Investment Corp., the nation’s $85 billion sovereign wealth fund, plans to almost double its share of alternative investments to 15 percent by year-end from 8 percent currently, and aims for 50 percent over the next five years, Chairman Ahn Hongchul said last month. Ahn expects longer-term returns of at least 10 percent if holdings rise above half of the portfolio.
It also operates in New York and London, where the focus is on both conventional and alternative assets. The fund plans to send more people from Seoul to those offices, largely to help assess alternative opportunities, said a company official.
“While stocks and bonds are financial assets, alternative assets are real investment, hedging against possible inflation going forward,” NH Investment’s Kim said. “To diversify investment portfolios and boost returns, the alternative investment would be an answer.”