Q: Where are Korean investors looking for opportunities today?
Like all other global investors, Korean institutional investors are now facing challenges to match their investment returns with their liabilities. Also, because of low interest rates and the low-growth environment, they are seeking higher returns from alternative investment opportunities.
They have been exploring higher returns through domestic alternative investments, but given the limited market size, opportunity sets in the domestic market are not enough for the inflow of capitals. Global investment is thus the inevitable choice for institutions in Korea.
Q: How do Korean institutions see alternative investments, particularly infrastructure?
When it comes to alternative investments, investors have all been talking about real estate, since its regular yield can be a good replacement for fixed income’s yield component.
Infrastructure as an asset class has risen to replace this real estate exposure in their portfolio. But given [investors’] limited experience and expertise in global infrastructure, they have been investing in infrastructure debt for the last couple of years, with infrastructure equity gaining traction these days. Since their appetite is tied to the replacement of their yielding assets – like fixed income or yielding real estate – their interest in infrastructure has focused more on core-type infrastructure, including PPPs, renewables and highly regulated, highly contracted assets that can generate consistent yield.
Q: Some Korean institutions seem to have taken a liking to project finance. Why do you think that is?
Project finance – for example, the recent energy transactions in the US – is just a part of infrastructure investment, which has been catching [institution’s] attention for the last couple of years. It has drawn attention these days because of its relatively higher return, even in its secure form of investment as a senior loan. I believe this attention will be expanded to other infrastructure opportunities, regardless of capital seniority.
Q: Korea’s public pensions have been beefing up their alternatives portfolios through funds and direct investments in recent years. What about private pensions?
The $100 billion pool of capital managed by private institutional investors – including corporate pensions, banks, insurance companies and securities firms – will gradually be unlocked for alternative investments. They are currently almost 100 percent exposed to fixed income, which means managing in an extremely passive way. Now they are considering how to beef up their returns.
Q: Can you talk about your current role after departing from NPS last November?
I joined at a time when Truston Asset Management is looking to develop its alternatives strategy, after spending seven years with NPS, most recently as head of global infrastructure.
Since its establishment in 1998, the firm has been focused on traditional investments like public equity and fixed income. It manages $7 billion of capital as of March 2017 [and is] mainly backed by institutional investors, including sovereign wealth funds and pensions.
In view of the long-term perspective and market demand for diversification, the firm has decided to hire highly experienced personnel from NPS and recently launched a platform for the alternative asset classes.
The platform’s current priority is to connect investors to infrastructure investment opportunities across the globe, as the asset class gathers more traction. After stabilising the platform’s operations and building a track record, the next step will be to develop strategies for other alternative asset products.