Dongbu Insurance Co. Ltd. is aiming to diversify its US-focused overseas alternative investments into Europe and Australia because of higher US interest rates, and is seeking to make an equity investment in timberlands and farmlands in search for a double-digit rate of return, said its chief investment officer.
The recent rate increases in the US have pushed currency-hedging costs for the South Korean insurer higher, and eroded its investment return from US alternative assets by 0.6% points. Until last year, cross-currency swap premiums had added 0.2% points to the return from US alternative investments.
“Foreign exchange rates are becoming a key variable changing the frame of insurance companies’ asset management,” Dongbu’s CIO Kyung-soo Chung told the Korea Economic Daily.
“Because of increased currency-hedging costs, we put on hold a few investment cases we had reviewed. Instead, we are considering expanding investments in Europe’s real estate and Australia’s infrastructure,” he said in a recent interview.
The return from US alternative investments has slid to 3.4% a year since the start of this year, below its target of 4% and last year’s 4.2%.
Dongbu has over 32 trillion won ($28 billion) of assets under management, about 10% of which is allocated to alternative investments.
The South Korean insurer is now focusing on timberlands and farmlands producing pistachio nuts, almonds and coffee. It will also boost investment in private debt funds targeting mid- to-small-sized European companies.
“Demand for those crops is rising around the world. So they are not only stable, but also we can expect a double-digit rate of return from them,” said Chung. He had led overseas investments at Samsung Life Insurance Co. Ltd. and handled asset management at the Government Employees Pension Service.
Dongbu, one of leading alternative investors in South Korea, pioneered the investment in aircraft funds as a domestic institution.
But Chung said it has stopped investing in aircraft funds since late last year due to declining returns from the overheated market.
By JiHoon Lee and Sanghun Oh
<Edited by Yeonhee Kim>