The tone set by a number of South Korea's leading institutional investors at last week's AsianInvestor Korea Institutional Investment Summit in Seoul was one of confidence.

These investors escaped the worst of the market turmoil. They now consider their mix of conservatism and home bias as a source of strength and wisdom. And while they faithfully refer to themselves as conservative and cautious, they are gradually turning to more ambitious plans for asset allocation, particularly with regard to alternative investments. Indeed, investors across Asia -- including sovereign wealth funds -- are increasingly focusing on alternatives.

Take the Korea Teachers Pension Fund, which was forced by the global financial crisis to focus on investment risk and thus cut its global investment programmes, says chief investment officer Lee Yun-kyu. But when prices fell, it moved quickly to buy both equities and fixed income. Moreover, he says, the fund's belief in emerging markets led it to maintain its position in emerging-market equities throughout the crisis.

As a result, KTPF achieved a 12.7% return on investment in 2009, the highest among Korean pension funds, says Lee.

Insurance companies are also looking back with a sense of satisfaction. Song In-kyu, Korea Post's insurance fund management head of research and asset allocation, says the institution earned a positive return throughout the crisis. With most assets in loans, bonds and structured products, and relatively little exposure to domestic equities, Korea Post Insurance Fund didn't feel the need to change its portfolio.

It wasn't an easy period, however. Kyobo Life's head of investment management, Eugene Chung, says his firm suffered particularly from its overseas exposures, which now account for 8% of assets under management. Most of this was invested in US investment-grade credit. Ballooning spreads and hedging costs served up a double-whammy in late 2008. "The pain made it feel more like a 16% allocation to us," he says.

The crisis prompted Kyobo to establish a taskforce that included its risk managers. This team divided assets into two buckets, discretionary and non-discretionary (its buy-and-hold pool). In the discretionary bucket, which included its overseas holdings, the team realised its single-A-rated US financial institution debentures were the source of losses. It then moved to create a new benchmark that underweighted financials, rebalanced and changed its hedging tactics from focusing on individual securities to the overall portfolio.

It could have been worse, however, as Kyobo Life had avoided collateralised debt obligations, mortgage-backed securities and other complex products. The insurer says it has learned the importance of managing currency hedges and how to reduce volatility in the total portfolio.

In a separate panel session, Lee Dong-ik, managing director of the private-markets group at Korea Investment Corporation, says that thanks to its youth, the state investment agency didn't face any troubled assets. (Although he didn't mention a position his team inherited in Bank of America that has made losses; KIC has asserted its intention to keep this as a strategic holding.)

Rather the crisis has been a great opportunity for KIC to be opportunistic and make deals in areas such as distressed debt and secondary private equity, as well as hedge funds. Lee says the crisis has also tipped the scales in favour of investors and away from general partners, when it comes to negotiating fees and charges.

Pension-fund and insurance-fund managers say now they must diversify more, particularly into alternative investments.

KTPF's Lee says the domestic capital markets aren't enough to help the fund reach its long-term investment return targets. The domestic equity allocation will rise from 20% today to 30% over the next few years, while alternative investments -- including private equity, real estate and commodities -- will rise from 12% to 20%. This is also meant to protect the fund, should global inflation return.

Lee adds that international exposure will rise from 8% to 20% by 2012. "We are considering all geographies and all types of products," he says.

The insurance companies, by nature, can't be so keen to invest in equities. Korea Post's Song says the biggest challenge is finding long-duration assets. Interest rates in Korea are likely to fall over time, which will put pressure on returns. He wants to see long-term (20-year) products developed in the local market, but is also eager to look at overseas alternative investments, including in emerging-market debt.

Kyobo Life also needs to boost its return on investment, says Chung, a point he also made last month. That means diversifying more into higher-yielding international sovereign and corporate bonds, but it also means reducing the big position in US investment-grade credit that got the firm into trouble. The overseas position won't be cut, but it will be adjusted, with more emphasis on alternative investments, including distressed, private equity and hedge funds. The insurer will also reduce its duration through swaps.