Korea Post’s Savings Bureau has been shifting overseas investment focus into relatively low-risk assets such as fixed-income assets since last year to brace for growing market volatility and sees commercial mortgage backed securities (CMBS) and collateralized loan obligations (CLOs) as the most attractive overseas assets, a local newspaper cited its savings unit head in a recent interview.
The savings arm of the government postal service manages 63 trillion won ($53 billion) in assets. It will maintain the proportion of low-risk assets, while steadily increasing overseas and alternative portfolios over the medium term, Chinyong Chong, who heads the Korea Post’s savings unit, told the Maeil Business Newspaper.
“The borrowing costs of our savings bureau are lower than those of other institutional investors, so we are targeting an annual return of 2~3%,” Chong was quoted as saying. “Our major targets are medium-risk, medium-return assets with an expected annual return of 2~3%.”
In 2017, it will allocate an additional 500 billion won ($423 million) to both alternative investments and offshore equities and bonds, or a 10 percent rise to its overseas and alternative portfolios of 5.2 trillion won as of end-November, 2016.
With US interest rates moving higher, CLOs and CMBS have been appealing to Korean institutional investors.
In 2016 alone, the postal service’s savings arm invested $600 million in CLO funds, $450 million in senior mortgage loans and $300 million in private debt funds.
To facilitate investment in offshore structured debt, the postal agency raised its investment limit for US CLO and CMBS to $800 million last year and revised internal regulations to shorten the investment review process for the purchase of CLO and CMBS.
Korea Post’s Insurance Bureau, which manages 50 trillion won in assets, also plans to expand investments in structured debts, CMBS and corporate bonds with high credit ratings, Jeong-gak Kim, the insurance unit’s head told Yonhap Infomax in a recent interview.
The insurance unit is aiming to commit about 1 trillion won to new alternative investments this year, after recently creating an alternative investment division. It plans to boost the proportion of alternative investments to more than 7% from 5% last year. Fixed-income assets made up 72%.
In particular, the insurance arm will zero in on US infrastructure facilities on expectations of massive infrastructure investment by the new US administration.
The insurance bureau targets an investment return of slightly above 4% in 2017, greater than last year’s estimated return of the upper end of 3%. Its target return is in line with the 4% level set by major South Korean savings funds for this year.
Kim leads the Postal Insurance Bureau of the state-run agency, while Dokyun Kim heads the Postal Insurance Asset Management Division.
<Edited by Yeonhee Kim>