A Korean pension fund that already has overseas alternative exposures is looking to add long-only mandates in global equities and fixed income.
Oh Tae-Ho, team leader of asset management at the Construction Workers Mutual Aid Association (CWMAA), says the small ($1.2 billion) fund is interested in expanding its total overseas allocation and diversifying it across asset classes.
The current yield on Korean Treasury bonds with three-year maturity (the fund’s ‘risk-free’ benchmark) is about 2.8%, and as such the target return for 2013 is 3.5%, notes Oh. Since about 80% of CWMAA's portfolio is in local fixed income, it will be challenging to reach that target for next year.
The association has no required rate of return, unlike life insurance companies, he says, but there will be $200-300 million capital inflows every year, which will be invested in “safe, stable, but reasonable” asset classes.
Currently, about 5% of total AUM is invested in equity-linked assets and the remaining 15% in alternative investments, including social infrastructure, real estate and private equity funds. In total, the fund invests about 5% of AUM in global assets, all of which are alternative investments.
This allocation is meant to provide alpha for the total portfolio. But domestically it has no alternatives exposure, although it does have some allocation locally to index-related derivatives.
CWMAA was established in 1997 by the Ministry of Employment and Labor for the purpose of providing welfare services for construction workers. It is similar to the Military Mutual Aid Association (MMAA) and Police Mutual Aid Association (PMAA) in Korea in terms of its purpose.
The CWMAA currently manages about $1.5 billion for its more than 3.4 million construction worker members across 20,000 construction sites. One of the most important services it provides is pension benefit planning. It has about the same asset size as PMAA, while MMAA manages about $7 billion.
In addition to the CWMAA's main asset management policy, such as developing and managing investments and risk management for a stable and profitable outcome, it also provides a retirement pension scheme, welfare enhancement, vocational training and job placement for its members.