South Korea’s Military Mutual Aid Association (MMAA) has changed its medium to long-term portfolio plan to increase the proportion of alternative investments.
According to the MMAA, the association plans to allocate 69.4 percent of its assets to alternative investments, around 2.9 percent points higher than its plan a year ago.
The mutual aid association has changed its medium to long-term portfolio plan, with a greater emphasis on alternative investments. The MMAA plans to allocate more than 70 percent of its assets to alternative investments between 2021 and 2024. The proportion of alternative assets is likely to increase to 75.9 percent in 2024 from 71.6 percent in 2021, which is five to nine percent higher than its initial plan set a year ago. The MMAA planned to allocate 66 percent of its assets to alternative investments between 2021 and 2023 last year.
The move is attributable to alternative assets’ stable returns. The mutual aid association returned one percent on alternative investments in 2017 which increased to six percent in 2018. It registered a return of 5.4 percent in 2019, which was the highest among its entire investment assets.
Specifically, the MMAA is expected to allocate a sizable portion of its assets to overseas real estate, largely by participating in a sell down process for equity investments in real estate properties by brokerage firms or asset managers.
The association’s real estate investments at home and abroad are likely to be focused on logistics centers rather than office and commercial buildings. “The outbreak of the coronavirus is expected to change institutional investors’ behavior,” said an M&A industry source. The source added institutional investors are likely to increase the proportion of logistics centers which can create synergies with delivery services industry.
On the other hand, the MMAA plans to lower the proportion of stocks and bonds. In 2019, the association planned to allocate 16 percent of its assets to stocks, which has been recently reduced to the 10 percent level for 2023 and nine percent level for 2024. The association plans to reduce its investment proportion of bonds by 0.8 percent points from 2020 to 2024.
The latest change represents those assets’ disappointing returns. The MMAA returned 1.4 percent on stocks last year, which was the lowest among all investment assets. Its return on stocks peaked in 2017 with nine percent and plummeted to minus four percent the following year.
“The latest move to reduce the proportion of stocks seems to reflect uncertainties over financial markets due to the outbreak of the coronavirus,” said an M&A industry source. (By reporter Kim Byung-yoon)