South Korea’s Teachers’ Pension will chase infrastructure facilities and industrial park properties in developed countries for overseas alternative investment, while focusing on e-commerce and daily necessities industries for equity portfolio, said its chief investment officer.
Overall, the $17 billion pension scheme will remain cautious about alternative investment and scale back equity holding slightly, CIO Kyuhong Lee told the Korean Investors.
“It seems like we are not in a situation to make aggressive investment. We will slightly cut equity holding and take a conservative approach towards alternative investment,” he said in a recent interview.
He cited recent economic indicators, corporate bond yields and volatility measures such as the VIX, saying they all indicate the economy remains in a crisis situation.
Last month, Teachers’ Pension committed 50 billion won ($40 million) to MBK Partners’ buyout fund and a combined 100 billion won to two other South Korean private equity firms.
For overseas investments, it does not make project-based investments, but invests through blind-pool funds.
The following are Q&As with Lee.
Q. On Teachers’ Pension’s response to the coronavirus-induced crisis.
“Since mid-March, we have been following the existing crisis management manual to respond to market conditions. We put on hold new alternative investment and deployed capital only to meet capital calls from existing blind-pool fund managers.”
“Now we have increased risk tolerance because of elevated market volatility. That means we will bear losses from stock price drops to some extent, without dumping them at a loss.”
Q. On investment strategy.
“Economic indicators released so far have been very gloomy and they are expected to get worse in months to come. There is no vaccine or treatment against the coronavirus. Factories in developed countries have been shut down and some regions remain under lockdown.”
“It seems like we are not in a situation to make aggressive investment. We will slightly cut equity holding and take a conservative approach towards alternative investment.”
Q. What if a recurrence of the coronavirus pandemic this autumn?
“Even if it reoccurs, the situation would be better then than March and April.”
“We will explore investment opportunities in sectors to emerge stronger post-coronavirus. Coronavirus is expected to accelerate the fourth industrial revolution such as the digital contact and contactless trend. But car sharing and share-office industries and sectors involving a crowd of people are expected to suffer as a result of the pandemic.”
“After the coronavirus subsides, aggregate global demand is expected to decline. Demand growth is likely to slow down. After experiencing the lockdown, people must have realized that they can go without some goods. Globalization could take a step back. There could be trend of transferring production of daily necessities back home, despite high costs.”
Q. On alternative investments.
“Our picks are digital infrastructure such as telecommunications infrastructure, as well as traditional infrastructure such as roads and railways. Because major countries are preparing fiscal injection into infrastructure projects. Even in developed countries, there are still many areas with poor road and railway conditions.”
Q. On overseas real estate investment plans.
“We have so far invested mainly in office buildings. But the rise of home working would cut demand for shared offices. In contrast, data centers, logistics centers and industrial park properties for companies seeking reshoring or a U-turn from overseas operations look promising.”
“Teachers’ Pension does not invest in overseas projects through domestic asset managers or brokerage companies. We only invest in blind-pool funds managed by local managers who have expertise in the markets.”
Q. On REIT investment.
“I think REIT is a good asset. My previous employer was Asia’s biggest REIT manager. But Teachers’ Pension has not invested in REITs and is unlikely to begin REIT investment in the near term. Because we need to discuss whether REITs can be categorized as equities or alternative assets.”
Q. On business outlook by industry.
“Among consumer goods, daily necessities stand to benefit the most. Businesses serving each customer individually will do better than those involving groups of people. I am upbeat about the semiconductor because of growing demand for laptops, driven by the fourth-generation industrial revolution.”
Q. On business outlook by country.
“The differentiation between the countries that can protect their companies with fiscal measures and those that cannot will become apparent. Developed markets will do better than emerging markets. For example, southern European countries with weak fiscal positions will likely suffer.
By Hyun-il Lee
<Edited by Yeonhee Kim>