Investment in alternative asset funds that usually invest in domestic and overseas real estate and infrastructure has sharply slowed down this year, mainly affected by the rising uncertainties due to the coronavirus.
According to the Korea Financial Investment Association (KFIA) on June 14, the accumulated amount of both public and private equity funds focusing on alternative investments was 240.7 trillion won ($197.7 billion) as of June 11. Though it is up 10.3 trillion won, or 4.5 percent from the end of last year, the average monthly increase this year has decreased by about one-third compared to the previous year, considering the accumulated amount of alternative investment funds increased by a whopping 60 trillion won last year.
The accumulated amount of alternative investment funds has been on the rise by about 30 percent every year in recent years, with 77.6 trillion won in 2015, 99.4 trillion won in 2016, 130.1 trillion won in 2017, 170.3 trillion won in 2018 and 230.3 trillion won in 2019.
Analysts attribute the slowdown of the increase this year to the coronavirus infection which has increased uncertainty in the commercial real estate market, limiting new investment activities.
However, the actual investment in alternative assets may be larger than the data released by KFIA as domestic institutions often invest directly in overseas alternative assets.
Pension funds and insurance companies, which have difficulty in finding profitable assets in which to invest their money amid the prolonged low interest rate environment, have increased the portion of alternative asset investments in their portfolio, expecting relatively high returns.
However, analysts said that they had to either suspend or delay most of the new alternative asset investments as the Covid-19 outbreak made them difficult to conduct due diligence on overseas real estates. Overseas investments represent 52 percent of their alternative asset investments.
The increased uncertainty surrounding the alternative asset investments also contributes to the slowdown in the increase of alternative investment, as prospects for rental income in the office and shopping malls sectors have become murky amid the rising popularity of telecommuting and non-contact transactions, analysts said.
Meanwhile, some analysts said although alternative asset investment has slowed down due to the coronavirus, it will not last long as there is no other way for pension funds and insurance companies to steadily increase their returns when the benchmark interest rate is near zero. (Reporting by Jinwon Lee)