Mutual aid associations, pension funds move to lower ROAM

South Korea’s several mutual aid associations and pension funds are moving to lower the target return on assets managed (ROAM) this year. The move reflects concerns that global economic damage wrought by the coronavirus may have a negative impact on their investment into alternative assets, which have generated relatively high returns among their portfolios. 

If the impact continues in the second half of this year further adjustment of ROAM may be unavoidable, investment industry sources expected. 

One mutual aid association recently lowered this year’s ROAM by 50 basis points from its initial ROAM of around 3 percent, one source said, adding that another one is also known to be internally discussing whether to lower its ROAM. 

Mutual aid associations and pension funds posted returns of around 5 percent through investment in alternative assets such as real estate and infrastructure last year. But industry watchers think it is not easy for them to expect such a high return this year due to the coronavirus pandemic. 

“Due to coronavirus outbreak it has become virtually impossible to conduct due diligence overseas so far and face-to-face meetings for overseas investment are also limited,” a source said. “We have not invested in overseas alternative assets in the first half of this year.”

Industry watchers are not ruling out the possibility of further lowering of ROAM by mutual aid associations and pension funds, especially as in the U.S., an attractive destination for alternative asset investment, coronavirus impact shows little sign of abating making it difficult to aggressively invest in it. Increasing stock investment at home and abroad is not also easy, as volatility in the stock market has grown significantly due to geopolitical and political issues as well as the coronavirus, another source said. 

“Considering the current trend, we expect overseas alternative asset investment to be limited in the second half of this year, and it is expected that both mutual aid associations and pension funds will mainly invest in such alternative assets as real estates and acquisition financing,” a third source said. “We cannot ignore the possibility of further lowering down the ROAM as the proportion of alternative investment in their portfolio is decreasing.”

“The most important thing for mutual aid associations and pension funds is to generate stable profits as they should return a certain level of profits to customers,” a fourth source said. “We expect them to expand the portion of safe assets like bonds while the stock market volatility is rising.” (Reporting by Byungyoon Kim)