According to reports, the Police Mutual Aid Association, a $2 billion pension fund for South Korean police force members, is allocating $30 million to funds managed by LGT ILS Partners Ltd., its first investment in the insurance-linked securities (ILS) asset class.
South Korean pension fund investment teams have shown an increasing appetite for investments in ILS, catastrophe bonds and collateralised reinsurance in the last few years, with a number of large pension funds in the country having committed capital to the ILS asset class for the first time.
Last year South Korea’s Public Officials Benefit Association allocated to LGT ILS Partners, Leadenhall Capital Partners and Nephila Capital for its first ILS mandate. Then earlier this year, Korea Post Savings launched a search for an ILS fund manager to allocate to.
The Police Mutual Aid Association is reported to have selected the LGT ILS fund as part of its shift towards more indirect investment in alternative asset classes through global investment managers, electing to begin with a $30 million commitment.
The reason for the shift is a desire to further diversify its portfolio of pension fund assets internationally, while also leveraging expertise from large investment management groups in specialist, or niche asset classes such as insurance and reinsurance linked investments.
A source from the South Korean pension fund told Korean Investors that it was willing to “invest as much as we can in assets with low correlation to traditional assets.”
The pension fund does not feel it has the expertise internally to manage assets such as ILS, hence looking for recognised international investment managers, with strong track records to allocate to.
Interest in ILS as an asset class is growing in South Korea and across the Asian region, as education on the benefits of its low-correlation with other asset classes and relatively stable returns over the longer-term increases.
A number of other South Korean pension funds are understood to be in the early stages of assessing ILS as an investment opportunity so it should be expected for allocations from the country to this asset class to increase.