Seoul Summit: South Korean LPs turned off by dollar assets

The country’s institutional investors will increase infrastructure allocations this year, but currency risk is steering them away from US investments.

With the won-dollar swap eating away at returns, South Korean LPs’ appetite for US dollar-denominated investments is waning, panellists from Korea Post, Korea Teachers’ Pension and the Construction Workers Mutual Aid Association told attendees at Infrastructure Investor’s inaugural Seoul summit.

The discount on the Korean won and US dollar swap has been so significant that it has become one of the biggest challenges for institutional investors in the country. Instead, they are finding Australian, European and UK assets to be more attractive options.

Two other issues the panellists identified as presenting challenges were communicating with foreign fund managers, who do not always commit the necessary amount of time required, as well as the lack of resources and the language barrier that makes due diligence of overseas investments difficult.

Despite these challenges, however, the three LPs on stage said they were planning to increase their allocation to infrastructure over the next few years.

Speaking of foreign GPs and their approach to Korean investors, Jinho Lee, head of global real assets at Korea Post’s insurance arm, commented on foreign fund managers’ recent establishment of a presence in Seoul and described it as “a right move”. But he also noted that he would like to see GPs putting forth ideas they can pursue in collaboration with Korean institutional investors, instead of simply setting up shop to raise funds.

“We need to be convinced as to why we should make a certain investment,” Lee said.
Korea Post, which has a combined AUM of $120 billion across two savings pools, is looking to launch more requests for proposals for infrastructure funds this year as it focuses on building a portfolio. Currently, 5 percent of its total AUM is allocated to alternatives.

Similarly, the 3.6 trillion-won ($3.38 billion; €2.73 billion) Construction Workers Mutual Aid Association of Korea is looking to increase its allocation to alternatives – which includes infrastructure – from 15 to 20 percent. Sang Min Lee, the association’s head of alternative investment, did not provide specific figures for infrastructure, but said the portfolio is expected to reach the size of its larger real estate portfolio.

While the Construction Workers Mutual Aid Association prefers to go direct, it will also invest through funds ¬– but it likes to do so as early as possible and before first close, Lee said.

Korea Teachers Pension Fund on the other hand, focused on secondary markets last year and Jeong Young Sin, head of its overseas alternative investment team, said he expects it will continue to do so. The 19 trillion-won fund is looking to reduce its fixed-income holdings to boost its alternatives exposure, which now accounts for 16 percent of its total portfolio.