KFCCC to take a more active investment approach

Jeung Jae-Ho, who joined the Korea Federation of Community Credit Cooperatives (KFCCC) in early July, says the institution’s portfolio investment style is set to become more proactive.

As executive director of the fund management headquarters, Jeung manages around $15.5 billion in assets, which are contributions and fees provided by its credit cooperative (CC) members. The total AUM of the CC system – aside from the KFCCC’s own assets – is around $54 billion, bringing the consolidated AUM of both up to $70 billion.

All CCs become a member of KFCCC on establishment, contributing share capital and membership fees. As a supervisory institution, the federation governs all CCs’ management and controls their liquidity.

Jeung was previously managing director in charge of investment banking, wholesale, and international business at Shinhan Investment Corporation. He joined KFCCC with the goal of turning its investment strategies around.

“So far, KFCCC’s investment attitudes have been too passive and conservative and, as such, there have been limitations in taking initiatives in selecting and managing the risk of its portfolio” says Jeung.

For example, in the case of the equity portfolio, he says he would rather pursue absolute-return strategies than performance linked to stock index benchmarks. To that end, KFCCC will take a more active stance in choosing such equity managers. Bby doing so, it can take faster action in terms of governing and risk managing the mandates it hands out.

KFCCC’s portfolio is composed of roughly 85% in fixed-income assets, 5% in equities and 10% in alternative investments. The latter includes allocations to real estate (almost half the alternatives exposure), hedge funds and commodities. Less than 10% of the total AUM is invested in overseas assets.

Jeung’s target returns for each asset class are 15% for equities, 6.5-7% for fixed income and 5% for alternative investments – for an overall target of 6.5%-plus in total portfolio returns.

Regarding the fixed-income assets, he is keen on structured and synthesised bond issues. With interest rates expected to increase, Jeung will focus on short-duration ones initially, but will eventually convert them into longer-term assets. On the equity side (both domestic and foreign), he will consider expanding the allocation to enhance total performance.

As for alternatives, Jeung particularly favours real assets -- both direct investments and indirect ones via funds -- such as energy-related assets. One example includes the institution’s investments in a power plant project, which provides them with stable cash flows.

Since KFCCC has to manage its portfolio as safely as possible, it has invested in property assets in the form of loans, project financing and commingled funds, but its future emphasis will be on cash-generating real assets. Examples include the institution’s purchase of the Wells Fargo building in San Francisco through a recent club deal and its participation in refinancing a real-estate deal in Australia.

The first CC in Korea was formed in 1963 to help local residents and small businesses that had difficulties obtaining bank financing because of their low credit status. Since then, CC has been providing local communities with financial services and various types of community activities in South Korea.

KFCCC was set up as a central bank of CCs in 1973 under Korea’s CC law, with a view to developing the CC system. The institution helps promote mutual growth by implementing supervision, advisory services, credit and insurance business, education and research, and public relation and international cooperation.

The CC and KFCCC network of financial institutions providing financial products and services to its members comprises more than 1,500 CCs and the KFCCC itself. Unlike under the typical commercial banking system, each CC and KFCCC are independently owned and operated.