The savings bureau of state institution Korea Post, which runs the postal and financial services of the country’s post offices, plans to double its overseas allocation by 2020 and is steadily raising its exposure to alternatives and equities.
Korea Post has two financial services bureaus: postal savings and postal insurance. They manage $60 billion and $40 billion in assets, respectively.
The savings bureau invests about 10% of its AUM overseas and plans to raise that to 20% within the next three to four years, said Hong Sa-Chan, head of alternative investment. That will largely come at the expense of domestic fixed income and will mean a further $6 billion flowing offshore via both direct investment and external fund managers.
“We are invested across the spectrum, such as in Europe and emerging markets including China,” noted Hong. “But now we have more exposure to developed than developing markets. We focus on investing where we can get good performance.”
The move to open an office in New York last year reflects the shift towards a more international portfolio. Korea Post also plans to expand more into emerging markets and hire more investment staff with offshore allocations in mind.
Moreover, the institution’s allocation to alternatives has been expanding, like that of other domestic state funds, such as Korea Investment Corporation, Korea Teachers Pension Fund and Government Employees Pension Fund.
As of late last year, Korea Post savings bureau had 3.87% in alternatives, up 1 percentage point since 2013, and plans to boost that to 8% by 2018. The allocation is split into real estate (31%), private equity (26%), hedge funds (26%), infrastructure (13%) and other alternatives (4%).
The bureau started to invest into alternative assets about a decade ago, concentrating initially on infrastructure, real estate and private equity. In the past few years it has moved into hedge funds.
It remains a fairly conservative institution, heavily focused on fixed income, both domestic and global, but it has also been increasing its exposure to domestic and global equities (click on table below to see how the allocations have shifted).
As it has moved into different assets, Korea Post’s savings unit has increased the size of its investment team by a third over the past two years, to 65 from about 45, boosting its alternatives and capital markets capabilities, among others.
“We have been making an effort to invest more in qualified staff and various assets,” Hong told AsianInvestor. “We have tried to allocate to new areas such as a movie fund, aircraft leasing, collateralised loan obligations, commercial mortgage-backed securities and intellectual property rights.”
By bringing more expertise in-house, Korea Post has been able to reduce the time it takes to make investment decisions, he added. “So improvements have come in our internal infrastructure, with internal and external committees and a risk management team that reviews the investment objectives independently.”
Even as Korea Post’s in-house staff has grown, it has also boosted the number of external fund houses it employs, which now number 200. Hong said: “The number of external managers has increased as our asset size and areas of coverage have increased.”
Note: See the December 2015 issue of AsianInvestor for an extended version of this article.