South Korean pension fund manager the Public Officials Benefit Association (POBA), which manages for government workers pensions and has over US$7 billion in assets under its control, is reported to be planning to double its allocation to insurance-linked securities (ILS).
In October 2016 we reported that the South Korean POBA pension fund manager had allocated around $40 million across a roster of three ILS and reinsurance-linked fund managers, LGT ILS Partners, Leadenhall Capital Partners and Nephila Capital.
That followed a typical period where the pension fund manager had assessed the sector, looked at the potential routes to deploy capital and decided on a multi-manager approach. The allocation is said to be to funds largely focused on catastrophe bonds, we cannot confirm whether any private ILS or collateralised reinsurance is included.
Now, it’s been reported by the Korea Economic Daily that POBA is seeking to expand its alternative investments allocations and that ILS funds stand to be beneficiaries of a larger allocation, with the pension manager set to allocate as much as $80 million to the sector in the second-half of 2017.
The report suggests that this will be tendered, so there is the potential for other managers to be taken on as well. Although by that time POBA will have some experience of the three ILS fund managers it selected initially, so its safe to assume that they will be on the short-list for any upsizing of its ILS investment allocation.
POBA reportedly appreciates the fact that it can liquidate catastrophe bond investment positions more quickly than some other asset classes, and that while returns are not that high, they are stable and provide a valuable fixed income like exposure for a pension fund.
Another sign that once large pension funds develop the internal understanding of reinsurance linked investments, such as cat bonds, educating trustees and board members, the allocations can increase in size relatively quickly as the asset class appreciation grows.
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