Allocator Interview with Korea POBA CIO Jang Dong-hun
Posted on 11/05/2021
SWFI’s Michael Maduell conducted a phone interview with Chief Investment Officer Jang Dong-hun of South Korea’s Public Officials Benefit Association, otherwise known as Korea POBA.
About Jang Dong-hun
Mr. Jang has joined the firm in November 2015 as a Chief Investment Officer of POBA. As the CIO, he has senior management oversight of the firm’s investments totaling around US$ 15 bil. and leads the firm’s strategic expansion in overseas investment area, reflecting the growing importance of asset size and portfolio diversification. He is responsible for portfolio investments including equity, fixed income, and alternatives. Previously, Mr. Jang was the Assistant Director in the Financial Supervisory Services (FSS) of Korea.
With over 30 years of experience in the Korean investment industry including managing equity and PEF portfolios for the National Pension Service, he is an all-rounded investment executive, who has worked across multiple functions including the CEO of AllianceBernstein Asset Management (Korea) and across private and government sectors. He served as a member of investment advisory committees for Bank of Korea, Government Employees Pension Service, Police Mutual Aid, Mutual Aid for Small Enterprises & Enterprisers, National Housing Fund, Scientists & Engineers Mutual Aid, Korea Hydro & Nuclear Power. Mr. Jang earned a MBA from University of Iowa and a Ph.D. from Dongguk University.
MADUELL: In your opinion are Korean pensions or insurers more conservative in investing?
JANG: Generally, Korean pensions and insurers are conservative compared to other global asset owners in strategy. After the global financial crisis, many asset owners got burned from their investments. Some Korean asset owners tended to the damage of aggressive investments.
MADUELL: How has Korea POBA evolved over the past decade?
JANG: The evolution from a domestic-oriented investor to overseas happened recently. I joined in 2015 and the asset allocation to overseas investments was 33.2%. At the end of last year, the allocation to overseas was 62.6%. In the past 5 years, much was accomplished and the amount was more weighted to offshore.
In terms of investment style, we used to be more focused on single project, basic investments. However, we are now focused on commingled blind funds, separately managed accounts, and joint ventures.
In the past we didn’t have much allocated to private debt and private real estate debt. Now private debt, infrastructure, and real estate debt, which are very resilient asset classes, are the backbone of the POBA portfolio.
MADUELL: There was news that Korea POBA is tied up in a U.S. commercial real estate loan joint venture with California State Teachers Retirement System (CalSTRS) and PCCP LLC.
JANG: Yes, we are involved in that deal. We use our balance sheet to look for yield investments.
MADUELL: You covered investing overseas, but what markets other than North America or Europe, are you currently looking at?
POBA aims to be globally well diversified. However, Korean asset owners tend to think emerging markets are highly risky. We currently have some allocation to emerging markets, but it is a conservative amount.
MADUELL: What areas of opportunity is Korea POBA look for in infrastructure and real estate?
JANG: Korea POBA has taken the strategy of regularly committing to flagship funds and recently adopted separately-managed accounts for co-investment opportunities in the infrastructure asset class. Using those platforms we have increased investment in infrastructure and real estate. By the end of last year, infrastructure made up 10% of the total portfolio.
Our focus is on stable infrastructure and renewables. When it comes to debt versus equity infrastructure, we have around 80% in infrastructure equity versus 20% infrastructure debt.
Our real estate portfolio is well-balanced compared to others with a higher allocation to offices. However, our real estate portfolio is about 25% in residential, 25% in logistics, 25% in traditional office, and the remaining 25% in other.
MADUELL: What is Korea POBAs take on hedge funds and cryptocurrency investments?
JANG: For hedge funds we invest through fund-of-funds. We selected three external hedge fund of funds for the platform. They provided decent returns and met expectations. We have plans to grow assets in hedge funds to maintain a certain level, which will mean we will need more fund-of funds.
We do not have enough internal expertise to go direct and select hedge funds, so it is the fund-of-funds model for now.
Cryptocurrency is a hot topic and as a conservative public investor we are waiting for a risk and return profile that is more clarified and that a regulatory structure is put in place.
MADUELL: Any plans for an overseas office?
JANG: It could be years to open up an overseas office.
MADUELL: What is a larger concern: inflation or stagflation?
JANG: Inflation is more of a concern. Even at least 1 year ago, Fed Chair Powell claimed inflation is transitory, inflation is transitory. I do not believe it. Although not higher similar to the 1970s and 1980s, inflation is much higher than what the monetary regime is expecting. Inflation is running for the time being. POBA is more focused on real assets such as infrastructure, real estate, and flexible-rate debt investments. Those kinds of investments prepare us for such macroeconomic issues.
My biggest concerns is the strong market rally has lasted too long. It lasted in 2019 and for two consecutive years public equities and fixed income securities registered double digit returns.
MADUELL: What are the opportunities in Korean media and entertainment? Examples such as K-POP bands going public, the popularity of Squid Games on Netflix….
JANG: Korea POBA always hires external managers. When BTS went public – our external managers – Korean GPs, they invested in those kinds of Korean media and entertainment companies. Very interesting opportunity going forward K-POP; our asset owners could provide local capital for them to grow further and we expect high returns for those activities too. More and more, we chose, the right manager who picks those selective investments.
MADUELL: What is the win? What does Korea POBA look for in an ideal partner (fund manager)? Typically RFPs vs. lists.
JANG: POBA will make our investments through external managers, searching for top quartile managers. External GP selection is the most important part in this process. We prefer a manager with a long, proven track record.
When it comes to niche areas, we like to focus and seek managers that have a stable shareholder structure. We like to see the fund vintages repeat; that they go through a repeatable investment process to make the right investment decisions. There needs to be a focus on style and not drift. We utilize both RFPs and lists when selecting fund managers.
MADUELL: Thank you for your time.
NOTES
Korea POBA website: https://www.poba.or.kr/
Proper ways to pronounce Korea POBA: Sound out P.O.B.A. or PO-BA.
