[Herald Interview] Korea Post to invest more in foreign, alternative assets

Calling low growth and low interest rates “the new normal” for Korea, the head of Korea Post, Korea’s second-largest investor that manages 108 trillion won ($96 billion), said it will direct more money into overseas bonds and alternative assets, going forward.

“Our main focus remains the same -- a big chunk of our holdings will continue to be in safe assets, such as government notes, which we will hold to their maturity,” Kim Kee-deok said in an interview last week with The Korea Herald.

“On top of large holdings of the safe assets, we will build a more diversified portfolio of mid-risk investments that include more foreign assets and the so-called alternative assets,” he said.

Korea Post, the national postal service provider, has 62.5 trillion won managed by its savings arm and 45.9 trillion won by its insurance division, as of the end of 2015.

Of the total 108.4 trillion won, nearly half – 54 trillion won -- is locked in safe havens, such as treasury notes, top-rated commercial papers or interest-yielding financial products which it plans to keep till their maturity.

As for more active investing, Korea Post has been gradually expanding overseas securities holdings and alternative investments, a trend shared by most of Korea’s major funds seeking to prop up profitability.

On the savings side, money invested overseas accounted for 15.3 percent of the total last year, up from 9.1 percent in 2012 and 12.1 percent in 2014. The insurance division saw its figure move from 14.9 percent in 2012 to 25.2 percent last year.

Alternative investments such as private equity, hedge funds and real estate grew from 2.6 percent in 2012 to 4 percent in 2015 at the savings division, and from 4 percent to 5 percent at the insurer.

“Those numbers will likely grow further,” said Kim, while declining to give more details.

Kim, who took office as president in August last year, said the postal service firm is open to new investment opportunities, stressing that it was the first large fund in Korea to make a foray into hedge fund investing in 2011.

Currently, it invests 750 billion won in global hedge funds, including 110 billion won in the so-called funds of hedge funds whose portfolios consist of shares in different hedge funds.

The National Pension Service, Korea’s top investor with 500 trillion won in assets, is to make its maiden hedge fund investment this year.

As for private equity, Korea Post has over 560 billion won in domestic-registered funds and 980 billion won in overseas ones.

Earlier this month, the insurance division picked two local private equity houses for an additional 30 billion won investment each.

“Unlike what the public tend to think, Korea Post staff do not directly trade stocks. Such kinds of active trading and investments are handled by external professionals hired through a strict screening process,” Kim stressed.

Korea Post’s presence in local derivatives market is expected to sharply grow in the coming months, following the government’s decision Thursday to give it a temporary exemption in the 0.3 percent transaction tax.

The institutional investor was once the single dominant player in arbitrage trading, responsible for nearly 57 percent of all transactions taking place in Korea. Its share, however, has now reduced to near zero since 2013 when it became subject to the levy.  

In 2015, Korea Post reported returns on investment of 3.32 percent for the savings fund and 4.46 percent for the insurance fund. This year’s targets are set slightly lower at 2.97 percent and 4.23 percent, respectively.

More than halfway through the year, the savings side is posting returns slightly below the mark -- 2.87 percent -- while the insurance arm is outperforming with 4.26 percent, Kim revealed.

By Lee Sun-young (milaya@heraldcorp.com)