Korea police fund allocates $60 mn to AMP’s infrastructure, LGT’s ILS funds

  • 2017-07-27

The Police Mutual Aid Association (PMAA) has decided to commit $30 million each to an Australian infrastructure fund of AMP Capital and an insurance-linked securities (ILS) fund of LGT Capital Partners as it is shifting further toward indirect investment in global alternative assets.

The savings fund for South Korean police officers has set up an internal policy of making all cross-border alternative investments through funds of global management houses, instead of seeking project-based investments, according to investment banking sources on July 26.

Doyoon Lee, CIO

Doyoon Lee, CIO

To do so, the $2 billion fund will first select global investment firms and then invest in their funds via domestic management firms which will be responsible for overseeing the investments.

A PMAA source said the move was intended to further diversify its target assets, as it is pushing into overseas alternative assets for better yields.

“We are willing to invest as much as we can in assets with low correlation to traditional assets,” the source told the Korean Investors.

Generally, South Korean asset owners receive investment proposals for individual cases from brokerages or asset managers and make an investment decision based on the proposals.

But the shortage of skilled asset managers in the country’s retirement funds makes it difficult for them to assess the proposals, which include conducting due diligence by themselves.

“Given the information asymmetry, we feel it risky to invest in individual deals, nor is it easy to verify them,” a PMAA source was quoted as saying by Yonhap Infomax. “We are looking for top-performing global funds and management firms, together with domestic management firms.”

Overseas alternative assets made up 18.5% of PMAA’s investment portfolio at end-2016, according to Infomax.

In 2016, PMAA’s alternative investments, combining both domestic and global assets, returned 4.9%, below its average investment return of 5.3% for the year.

PMAA’s allocations to the two alternative investment funds come after the Public Officials Benefit Association (POBA) in February committed 40 billion won to the blind-pool fund of AMP Capital focusing on Australia’s public service facilities.

Last year POBA, a retirement fund for South Korean public officials, also allocated an aggregate $40 million to three ILS fund management houses, including Europe-based LGT Partners.

ILS funds invest in ILS, and catastrophe bonds issued by insurance companies are the most commonly-traded ILS products.

By Daehun Kim and Taeho Kim

daepun@hankyung.com

<Edited by Yeonhee Kim>