South Korean investors crave cross-continental opportunities

South Korean investors look for opportunities outside Asia more than their peers in mainland China, Hong Kong and Singapore, according to a report on asset management's future in Asia. 

An online survey of attitudes and behaviours of 418 investment professionals showed that Asian investors strongly prefer investing in their home continent because it's the one they know best. South Korean investors are the exception. They look to North America most of all (58%) and are almost as likely to target Europe (37%) as Asia Pacific (39%).

“Korean investors have been keen to expand overseas investments against current high allocation to domestic market while AUM is rapidly growing, especially for institutional investors. As much as Korea market size is quite high within Asia and EM, their preference is more for North America and Europe to diversify their portfolio in terms of overseas investments,” Elizabeth Oh, wealth business leader, Korea at Mercer, told AsianInvestor, in reaction to Fleishman Hillard's The Future of Asset Management in Asia 2022 survey.

PRIVATE PREFERENCE

South Korean investors may have responded to the survey in the way they did because of the emergence of private funds, or alternative investments,  there in recent times. Many of the oppportunities for this type of fund, which often have more of an appetite for alternative investments, arise in North America and Europe.

Around 300 new fund firms were registered in the country as of the end 2021 after the financial regulator loosened rules on private equity funds in 2015, according to Korea Economic Daily, a business daily newspaper. 

“As the survey also indicated, alternative investments are also one of areas that Korean institutional investors are increasing their investments. Quite a number of qualified deal cases are dominated to North America and Europe, so it would be naturally allocated to the market,” Oh said.

The alternative investment trend has mainly been led by institutional investors that favour private equity fund products such as different risk/return strategies with private equity funds, private debt funds and real assets, typically offshore. They do so over public mutual funds due to diversification and less market-correlated returns. Several South Korean pension funds also outsource investments to external asset managers for alternative investments like private debt and real assets.

One of these is South Korea’s DGB Life Insurance. Although fixed income is the backbone of the investment portfolio, the potential of private debt investments, and other alternatives is hard to ignore, according to DGB Life CIO Byungkyu Cheon.

“From a regulatory perspective, we still have a lot of liquid fixed income assets such as treasuries, government bonds, and high-grade corporate bonds. However, from a return perspective we need to increase private credit investment that can enhance our portfolio return at the cost of liquidities,” Cheon said on May 26 at the Asian Investment Summit hosted by AsianInvestor.

Also read: Private debt promises better gains for asset owners in low-yield environment

CONFLICT INFLUENCE

With the Ukraine-Russia war increasing global volatility, most investors in the survey are moving investments into lower risk options. 

For example, 52% of South Korean res pondents said the conflict was leading their firms to move their investments to lower-risk products. For Hong Kong the figure was 53%, 62% in mainland China and 37% in Singapore.

“We believe the positive performance and track record of North America market over the last couple of years is also one of background for [South Korean investors’] relatively higher allocation although they’re also looking for further regional diversification across Asia and EM under the current volatile market situation and geopolitical status,” Mercer’s Oh said.