Korea's POBA considers alternative investments
Lee Seong-Dong, chief investment officer at Korea's $3.6 billion Public Officials Benefit Association (POBA), says the fund may need to rebalance its investment allocation to meet return objectives, despite concerns over volatility in the portfolio.
The fund is now considering whether it should invest in alternatives to retain stable-return assets while attempting to reduce volatility on the balance sheet. For now, it is not ready to increase its overseas investments -- but this may change. POBA can consider investments on a deal-by-deal basis, says Lee, who joined the organisation in November.
This seems to be something of a trend among state organisations in Korea. Another government pension fund, the Government Employees Pension Service, is looking to boost its allocation to alternatives, as is Korea Investment Corporation, the state investment arm.
POBA was established as the Public Local Administration Association in 1952 to provide financial and health security to those local government employees during employment and even retirement by offering an all-around life mutual benefit scheme.
By definition, local governments include all the cities (including Seoul and Busan), provinces, counties and other smaller municipalities.
The creation of the Korea Public Local Administration Association, the parent body of POBA, became a reality when the government approved it during the Korean War in Busan, a provisional capital of Korea at that time. The Association was reformed in 1975 as the demand for various mutual-benefit systems grew much faster than expected, and then, in 1990, a special law was enacted to allow it to become a corporation with the current structure and civil law status.
POBA is administered by the Ministry of Public Administration and Security, which is also the case for the Government Employee Pension Services (GEPS). It has around 222,000 members.
Its 2009 portfolio return was around 8%, and this year its target return is set at 8.2%. The expected asset size will be close to $3.95 billion in 2010, up by $360 million from the end of 2009. POBA's AUM in 2004 was around $1.67 billion.
POBA's largest asset allocation is in corporate and development investments projects at 40.4%, followed by domestic fixed-income assets at 24.3%. Interestingly, its domestic equity allocation is rather high, at 20.7%, compared to that of other Korean pension entities.
Notable foreign investments by POBA include office properties in Dubai and China, residential properties in Cambodia, bio-diesel projects and Laos bank equity investments. POBA has also been quite active in domestic real-estate development projects and equity investments of Korean corporations (LG card, Daewoo constructions, MiraeAsset Life) as shareholders.
Lee started his career with Korea Investment Trust Company in 1989 and worked with Hungkuk Life and Hungkuk ITMC, respectively, as CIO and CEO. He says his major focus will be alternative investments.