[Herald Interview] Teachers’ Pension eyeing infrastructure in Europe, Asia

 Teachers’ Pension, South Korea’s second-largest retirement pension, is eyeing investment opportunities in infrastructure projects in Europe and Asia while targeting the fund’s annual yield at 4.2 percent this year, its chief investment officer told The Korea Herald.

David Park, the new CIO of the pension fund, took office in January. He is well-known in the financial industry for his expertise in infrastructure investment. Prior to joining the pension fund, he served as CIO of Allianz Life Insurance Korea from 2006 to 2016.

In an exclusive interview, Park said the pension fund is seeking two minor portfolio rebalancing to target higher profits this year -- moving some funds from local to overseas, and from equity investment to investment in tangible assets such as real estate and infrastructure.

“Last year, high yields from overseas alternative investments mostly came from core real estate investment, mezzanine and opportunistic strategies in the US and Europe. Now we’re interested in logistics assets in Europe and Asia including Japan,” Park said in his office in Yeouido, Seoul.

“Logistics market has less price fluctuation than the office market. Demand in logistics is expected to continue to rise with a growth in e-commerce market.”

The pension fund’s financial asset pool has grown to 14 trillion won ($12.5 billion) with the number of subscribers reaching 320,000. Korean teachers and clerical workers at private schools are obliged to subscribe to the Teachers’ Pension, which is currently run by 220 employees.

The fund’s annual return on assets was 3.9 percent in 2016, slightly up from 3.7 percent in 2015. Park hopes to raise it to 4.3 percent this year and keep the rate steady for the long term.

Currently, 80 percent of the 14 trillion won fund is placed in local stocks, local bonds and local alternative assets, while the rest is in global assets.

“We plan to increase the proportion of assets we’re holding in foreign currencies to 25-26 percent by 2021,” Park said.

The CIO said he was seeing more profitmaking chances in global stocks and bonds this year, as the global economy is making a turn from deflation pressure to inflation.

South Korea’s growth projection at 2.5 percent level, which is lower than the projection for global growth at low 3 percent range this year, was another reason to seek overseas investment, he said.

Park also noted the possibility of the Bank of Korea’s key interest rate going lower than that of the US Federal Reserve at the end of this year is a concern for a capital outflow.

“Just a year ago, foreign investors (investing in Korea) used to enjoy 120-130 basis points of foreign change premium when the interest rate in Korea was higher than that in the US. But those premium could turn into cost if Korea’s low interest rate persists,” he said.

The BOK’s key rate now is 1.25 percent, while the Fed recently signaled that it would gradually raise interest rates for the next three years from the latest 0.75-1 percent range. If the Fed seeks 0.25 percentage point hike twice this year, the interest rates between the BOK and the Fed will be reversed.

However, even if foreigners pull out their funds with a reverse of the interest rates, it will be “much milder” than those occurred during the 1997-1998 Asian financial crisis or the 2008-2009 global financial crisis, he said.

He also said the Teachers’ Pension will push its 2014 plan again this year to get government approval for reconstructing the pension fund’s 20-story office building in Yeouido, Seoul, as part of efforts to secure a stable, long-term profit from leasing. Seoul’s office market in central business district area yields about 5 percent annual return, according to industrial sources.

By Kim Yoon-mi (yoonmi@heraldcorp.com)