Korea military fund to boost overseas exposure

Korea's Military Mutual Aid Association (MMAA) is keen to increase its securities portfolio during the second half of 2011.

Local real-estate markets, to which it is heavily exposed, have not lived up to performance expectations, nor provided the breadth of investment opportunities for the growing $7.6 billion fund.

Established in 1984 to ensure more stable livelihoods and welfare for Korean military service personnel and related civilian members, MMAA currently serves more than 170,000 members.

It has invested mainly in real estate, both domestic and international, but as it continues to grow it needs to change its approach. In 2010, its AUM grew by 12%, from $6.8 billion. In 2008 it set up its own asset-management arm, M Plus Asset Management Company.

“MMAA will expand new investments in foreign markets,” says Jin Yeong-Ho, chief investment officer of financial asset management. He says foreign markets, particularly emerging markets, are likely to offer better performance over the next year.

Jin argues that the Korean economy has been increasingly moving towards advanced economies in terms of GDP growth and demographics, and as such other emerging countries will provide more opportunities for higher return compared with the risks. This will lead to better quality investment portfolios from MMAA’s standpoint.

Traditionally the MMAA has been noted for its strong focus on large-scale housing developments, construction and real estate projects.

At present, MMAA's portfolio consists of construction and real estate development (45.9%) and financial investments (54.1%), including direct equity investments into its subsidiaries. This indicates that during the last year MMAA has increased financial investments from 49.2% to 54.1% this year. And this shift will continue for the foreseeable future.

The current financial investments portfolio of MMAA is composed of domestic investments (83%) and overseas’ investments (17%). The latter includes investments in countries such as China, the US, UK, Japan, Laos, India and Europe.

The largest portion of MMAA’s financial investment portfolio is invested in private equity funds (55.2%) and traditional stock and bond investments account for the rest (44.8%).

In addition, MMAA is now seriously considering new foreign investment vehicles such as overseas exchange-traded funds and hedge funds.

There are three other welfare-oriented credit union entities in Korea: Korea Teachers Credit Union (KTCU), Public Officials Benefit Association (POBA), and Police Mutual Aid Association (PMAA).