Korea Post’s $97 Billion Fund to Purchase U.S. Stocks, Bondsby
Fund seeks to invest in structured notes with mid-risk: Kim
The postal service runs 110 trillion won of savings, insurance
South Korea’s biggest postal service will buy more U.S. assets as the state-run fund joins a global hunt for returns amid record-low interest rates and sagging economic growth at home.
Korea Post, which oversees about 110 trillion won ($97 billion) of savings and insurance, plans to boost holdings of U.S. equities and bonds, as well as structured notes and alternative investments including hedge funds and real estate, said President Kim Kee Deok. He didn’t give a target of how much the fund wants to spend overseas, after it boosted foreign investments to about 20 percent of assets in 2015. Among its current investments are domestic stocks, government and corporate bonds, and money-market securities.
“We can’t help but shift into overseas assets to meet our targeted returns, as domestic markets are so sluggish,” Kim said in an interview at his Seoul office. “We are also willing to buy more structured notes for medium-risk investment, if there’s any good products.”
Long-term money managers across the world are grappling with how to invest as BlackRock Inc. predicts returns on most assets will struggle to top 6 percent over the next five years. Yields on South Korea’s three-year government bonds sank to a record low in July as concerns that the Brexit vote will harm global trade dimmed the Asian economy’s outlook. The nation’s central bank last month cut its projection for economic growth as it held interest rates after lowering them in June.
The National Pension Service, the country’s biggest pension fund that overseas 512 trillion won of assets, said in May it plans to increase its overseas investments to more than 35 percent of total assets by the end of 2021, from 24.3 percent in 2015. The state-run fund is also targeting to hold 10 percent in alternative assets by 2021, such as hedge funds or private equity funds.
Korea Post will invest in developed countries and some assets in emerging markets, with the U.S. being its preferred destination because of its stable market and solid growth, it said by e-mail.
The U.S. S&P 500 Index hit a record-high this year and is up 5.5 percent in 2016, almost double that of the benchmark Kospi index. The Korean gauge sank 1.2 percent at the close on Wednesday.
In May, state-run Korea Post said it spent 300 billion won for a 47 percent stake in a Manhattan building leased by Amazon.com Inc., adding to its portfolio of properties it owns across the world, from New York, Vienna to London, and Wroclaw, a city in Poland. The fund favors properties with stable earnings, such as those with “good tenants with plans for the long term,” said Kim.
“Global demand for U.S. assets is rising as it has relatively lower uncertainty and higher returns,” Korea Post said by e-mail. “That doesn’t mean we exclude all assets in Europe. We think there could be an investment opportunity in some alternative assets that are undervalued compared to market value.”
Kim said he is monitoring developments in Europe, including the U.K, following Brexit. “All institutional investors are backing off from real estate in the U.K. and Europe due to the volatility and uncertainty in the pound with the Brexit issue,” Kim said. “We also heard early this year that there seems to be a bubble in global real estate market. We are just watching the situation now.”
With almost 40 percent of its portfolio invested in government bonds or corporate debt with high ratings, the service’s fund is “the most stable among sovereign and pension funds in the country,” Kim said. The service’s insurance division has made returns above 4 percent annually since 2012, while its savings has posted returns of almost 3 percent to 5 percent, according to Korea Post’s website.
“The biggest value for us in investment is stability,” Kim said.