Korean fund considers hiring investment consultant

The KTCU is looking to gradually increase its international exposure.
The W13 trillion ($13.8 billion) Korea TeachersÆ Credit Union is likely to increase its international investments over the next few years, and is considering whether to hire an investment consultant to help it, says Wee Sangkyu, manager of alternative investments for the groupÆs investment team.

The KTCU provides a series of functions for the nationÆs public and private school teachers, ranging from elementary school to university, including savings accounts, insurance products and loans. It is regulated by the Ministry of Education.

About half of its assets, over W6 trillion, are invested in securities portfolios. Another W3 billion or so is lent to members, while the rest is invested in social capital projects such as infrastructure û the KTCU is a major investor in the highway connecting Seoul to the international airport at Inchon, for example.

The KTCU has been changing how it allocates its securities portfolios in order to meet its liabilities, which require it now to earn an annual total return of over 6%, a task that has been made difficult by the fall in Korean interest rates over the past five years.

Over 60% of the securities portfolio is still invested in domestic fixed income. The KTCU continues to shift out of bonds into domestic equities and private-equity or domestic M&A situations. But equities are risky and the Kospi looks stretched, so the KTCU is keen to find alternatives, including domestic real estate, project finance and international investments.

The group made its first international investment two years ago, but today still has only around $150 million of overseas assets in its portfolio. Wee believes that the KTCU will gradually place up to 10% of its portfolio assets overseas over a period of several years.

The KTCU is looking at equity and fixed-income mutual funds as well as hedge funds, and may place another $100 million this year. Over time it wants to consider international investments in private equity, real estate and structured credit products.

The organisation already has a modest exposure to hedge funds, investing in principal-protected funds via ideas generated by Korea Investment Trust. It would like, however, to learn how to make investments directly.
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