Korean pension fund, the Public Officials Benefit Association (Poba), recorded an annualised return of 11.8% in six months to June this year – one of its best half-year performances - fueled by a diversified portfolio in global alternative assets.
It meant Poba achieved its year-end target of W17.6 trillion of assets under management six months early, Jang Dong-hun, Poba’s chief investment officer told AsianInvestor in an interview.
The return pushed Poba’s AUM to W17.9 trillion ($15.2 billion) at the end of June, up from W16.4 trillion by end-2020.
Two-thirds, or W1 trillion ($851 million), of the W1.5 trillion increase, came from investments, while the rest was made up of members’ net inflows into the pension fund.
“Poba wrote a new history in 1H, achieving annual return and AUM targets. We owe it to our partners such as external advisors, general partners, and like-minded asset owners,” Jang wrote on social media on Monday.
Poba has an alternatives-heavy portfolio with about 58% of assets allocated to the private market. Overseas alternative assets, especially in Europe and the United States, accounted for two-thirds of them.
As a comparison, Korea’s National Pension Service saw a 5.82% return in the first five months of this year, while Japan’s Government Pension Investment Fund gained 2.68% in the first quarter from April to June – all fueled by public equities, while alternative assets only account for 10.6% and 0.75% in their portfolios respectively.
Unlike them, Poba's investments in global alternative assets, especially in private equity, private debt and hedge funds, generated a 12% return in the first half of 2021.
Overseas alternative investments were the biggest contributors, through a mix of co-investments, joint ventures, blind pool funds and separately managed accounts. Among them, overseas REITs, mainly in the US, earned Poba some W80 billion.
Domestically, the pension fund gained W130 billion from three investments in private equity and real estate alone.
It made a profit of W40 billion from a private equity fund investment in Hive, the management company of Korean boy band BTS, and W30 billion when H&Q sold its online recruitment platform JobKorea for W900 billion.
In real estate, Poba earned W60 billion by selling a portion of its stake in an office building – leased to Kakao, Korea’s Facebook-like internet giant – located in Pangyo, knowns as the Silicon Valley of Korea. Poba invested in the building about 10 years ago.
“Covid has been a test for alternative assets. If any of them survive, they would be quite investable in the future and we can continue to expand,” Jang said.
"Poba will continue to invest in resilient and durable assets and sectors in the alternative area, especially in real estate, infrastructure and private debt," he said, adding that the fund will remain focusing on niche sectors such as data centers, life sciences, and clean energy.
It will also gradually increase ESG incorporation in its portfolio, especially in alternative assets, in the future. One project Poba is looking at in the second half is a joint venture with global asset owners to invest in affordable housing projects in the US, Jang said.