“Only free lunch in finance is diversification.”
Korean institutional investors, who have seen their assets under management (AUM) snowball for the last 10~15 years, are in the process of understanding and replicating this simple, yet most important, principle of the modern portfolio theory. As correlation between stock and bond prices has increased since the 2008 financial crisis, Korean asset owners have tried to boost their exposure to alternative asset classes.
Implications to the global investment community? Huge. The National Pension Service (NPS) alone should allocate a further $80 billion to alternative asset classes through 2021 to meet its “mid-term asset allocation plan.” The Korea Investment Corporation (KIC) aims to increase the portion of alternative investments to 20% of its portfolio by the end of 2020, which means it has to invest at least $7 billion in offshore alternative assets like private equity, hedge funds, real estate and infrastructure over the course of next four years.
Investment professionals at these institutions try hard to learn and allocate their assets to as many asset classes as they can in order to minimize the risk and maximize the return. At the same time, they make every effort to educate Korean law makers, regulators and general public on the need of doing so. The fund management committee of the NPS, for example, lifted the ban on hedge fund investment in 2015 only after its professionals spent more than five years in persuading the committee.
As the size of assets they manage grows, they need help. They need information, education and support because their investment decisions should be made in ways to maximize value for beneficiaries and to make financial markets more efficient. This is why the Korea Economic Daily started ASK (Alternative Summit Korea) in 2013, a bi-annual conference where Korean investors can share insights and information with offshore asset managers, consultants and attorneys.
And here we launch another platform, the Korean Investors; a news outlet for global fund managers, marketers, consultants and attorneys. The Korean Investors will keep you updated, once a week, with the latest news on Korean asset owners: their investment decisions, changes in strategic & tactical asset allocation, risk-return profiles and moves of people in the community. It is a weekly email newsletter, but you can always search past articles at www.koreaninvestors.com.
Hope that, with this new platform, your business will thrive as the Korean investors meet their ultimate goal: maximize risk-adjusted returns for their beneficiaries.
With warmest regards,
May 23, 2016
Chang Jae Yoo
Editor, the Korean Investors
Senior Reporter, the Korea Economic Daily