MG Korean Federation of Community Credit Cooperatives (KFCC) will allocate a total of 7 trillion won ($6 billion) to alternative investment blind-pool funds for the next three years, with 75% of its committed capital likely to be funneled into global assets, its credit business head Kwang-Seok Kwon said on Dec. 4.
The planned allocation represents 10% of assets under management at the community bank and a significant step forward to diversify its fixed income-heavy portfolio of which global investments account for only 5%.
“Our profitability is being threatened by falling interest rates, given that 70% of our AUM is composed of domestic fixed income,” Kwon told reporters in a news conference. “Starting with 2.3 trillion won next year, we will commit about 7 trillion won to blind funds over the next three years.”
The 2.3 trillion won earmarked for 2020 will be divided into 1.3 trillion won for corporate financing composed of private equity and private debt funds and 500 billion won each for real estate and infrastructure funds.
It will begin the selection process of management companies in the first half of next year for the mandates, with a plan to contribute 30 billion to 100 billion won to the respective funds.
For the private equity portion, KFCC will commit 500 billion won every year to domestic and global private equity funds respectively, beginning next year.
KFCC has been banned from contributing to blind-pool funds since 2012 by the Ministry of the Interior and Safety (MOIS) which oversees the community bank, after it incurred valuation losses from a domestic real estate fund in the wake of the 2008 global financial crisis.
“We decided to resume investment through blind funds after discussion with the MOIS, stressing that the investment environment has changed since then,” Kwon said. “The (domestic real estate) fund recouped losses in the end.”
In aggregate, the planned 7 trillion won allocation will consist of 3.92 trillion won corporate financing to be split into 3 trillion won for private equity and 920 billion won for private debt, and 1.54 trillion won each for real estate and infrastructure funds.
The equity and debt allocation is likely to be in a proportion of 70:30, he added.
The shift in the investment strategy comes after Kwon, a former CEO of Woori Private Equity Asset Management Co. Ltd., took the reins in 2018 of the KFCC’s credit operations which runs 1300-odd branches across the country.
Kwon had also served as vice president and head of investment banking business at Woori Bank, an affiliate of Woori Private Equity.
Separately, KFCC plans to raise the proportion of listed stocks both at home and abroad from the current 0.4% via management companies, while lowering the proportion of fixed income to 61%.
It will also hire specialized fixed income management firms for global investment.
By Hyun-il Lee
<Edited by Yeonhee Kim>