Korea teachers’ fund eyes CLOs, PEFs as market volatility seen up in 2017: report

  • 2016-12-15

Korean Teachers’ Credit Union (KTCU), the largest savings fund in South Korea, sets its eyes on offshore collateralized loan obligations (CLOs), private equity funds and infrastructure, its chief investment officer told a local newspaper, as the $25 billion fund sees its alternative investment increase outpacing the fund’s net asset growth next year.

Looming U.S. rate hikes are expected to boost interest incomes from CLOs, while heavy turnovers of the securities backed by a pool of low-rated corporate loans make it easier to cash out of them. Both at home and abroad, PEFs and infrastructure are seen as less vulnerable to market volatility, the Maeil Business Newspaper said on Dec. 13, quoting KTCU’s CIO Sung-seog Kang as saying.

“Next year, financial markets will face greater volatility with external uncertainties such as U.S. protectionist tr­ade policies, elections in the Eurozone and Brexit negotiations, coupled with local political instability,” Kang told the daily in an interview. “We will sharply raise the proportion of alternative investments less vulnerable to market fluctuations.”

The retirement savings fund for school teachers and personnel is aiming to lift onshore and offshore alternative investments by an additional 2.6 trillion won ($2.23 billion) in 2017. The planned increase is slightly above its projected net asset growth of 2.3 trillion won ($1.97 billion) next year to 31 trillion won ($26.5 billion).

KTCU will invest in local companies, through PEFs, which have technology competitive enough to go abroad, or can create synergies through M&As of foreign companies. For infrastructure investment, it is seeking to form a blind-pool infrastructure fund. Kang added that expressway service stations across the country would emerge as attractive investment targets, considering increased road traffic and a lack of competition for retail shops in those service areas.

Overall, KTCU will push the proportion of overseas investments higher to 37% next year from 33.6%, while cutting the share of domestic assets to 63% from 66.4%. It will scale down conventional assets such as equities and bonds susceptible to uncertainties triggered by the prospective U.S. protectionist policies and rate rises.

“As the low rate environment continues, it is becoming difficult to find suitable investment opportunities. We will focus on exploring overseas assets yielding better returns than domestic assets,” said Kang.

KTCU has trimmed its 2017 annual return target to 4.32% from about 5% in 2016, reflecting the sluggish economy, a local media reported earlier this month.

<Edited by Yeonhee Kim>