The Public Officials Benefit Association (POBA), a savings fund for South Korean public officials, will select about two management firms to commit $40 million to overseas cat bonds, more than it had initially planned to invest in the asset class.
Last June, POBA’s Chief Investment Officer, Dong-hun Jang, told the Korea Economic Daily that he was considering investing 20 billion~30 billion won ($18 million~27 million), set to become the first domestic limited partner in the new type of instruments. Since then, it has been contacted by a number of asset managers, which helped the association make the larger-than-expected investment decision, according to a POBA source on September 9.
POBA will receive applications for non-life, insurance-linked securities (ILS) strategy funds by Friday, September 23 at 5 p.m. (Korean time), POBA said in a short notice.
Qualified candidates should be asset management firms or securities companies registered in South Korea, or eligible to be registered in the country after being selected. They are allowed to make more than one proposal.
Jang, who has been interested in bond-type investments, was lured to cat bonds which non-life insurance firms issue to protect against a big disaster. Unless a catastrophe takes place for a certain period, investors can make additional gains from cat bonds on top of interest rate incomes.
The low possibility of a big disaster occurrence and strict payout conditions attached to cat bonds raise the attractiveness of the asset class. Its annual return of as much as 6% also was appealing in the current low-interest environment, the POBA source added.
The investment decision in cat bonds came after POBA went through a four-month internal review and confirmed that global LPs have already invested in them for a long period of time and earned handsome returns.
By Donghun Lee
<Edited by Yeonhee Kim>