Yellow Umbrella, South Korea’s mutual aid association for small and mid-sized business owners under Korea Federation of Small and Medium-sized Businesses (KBIZ), plans to expand its exposure to alternative assets this year.

According to Yellow Umbrella’s 2020 asset allocation plan, it will manage assets worth 14.4 trillion won under its control this year, up 21.4 percent compared to 2019. Yellow Umbrella’s assets under management (AUM) is on the rise, exceeding 10 trillion won threshold last year. The increase in AUM is attributed to growing members, with the number of subscribers and the amount of installment savings in 2019 rising by 16.9 percent and 29 percent, respectively, compared to a year ago.

What is notable about the fund’s latest plan is the proportion of alternative investments. Yellow Umbrella plans to allocate 17.8 percent of its AUM, or around 2.56 trillion won to alternative assets, which is the second largest proportion after bonds, which accounts for 63.5 percent of its total assets, or around 9.15 trillion won.

This move shows a stark contrast to the fund’s plan for other assets. This year, Yellow Umbrella plans to increase the proportion of alternative investments by 4.2 percent points compared to 2019. On the other hand, the fund aims to reduce the share of bonds, stocks and short-term fund by 2.4 percent points, 0.6 percent points and 1.2 percent points, respectively.

The share of alternative assets will exceed that of stocks this year. Stocks accounted for around 20 percent of the fund’s total assets between 2016 and 2018. The proportion dropped to around 16 percent last year and Yellow Umbrella will lower the proportion to 15 percent level this year. In the meanwhile, the proportion of alternative investments has been growing from 2016’s five percent.

Market observers said this is because the fund focuses more on stability rather than high returns. Indeed, Yellow Umbrella aims to return 4.49 percent from alternative investments in 2020, lower than its target for stocks (5.05 percent).

“As Yellow Umbrella is a savings fund for small-sized business owners, it focuses on stability of investments. Heightened uncertainties over stock markets due to the outbreak of the coronavirus this year also seem to have affected its plan,” said an M&A industry source.

Yellow Umbrella is expected to maintain its existing strategies for alternative investments. The fund may commit almost evenly to overseas and domestic alternative markets, of which it will mainly invest in private debt funds in overseas alternative markets and in acquisition financing at home. 

(By reporter Kim Byung-yoon)