South Korea’s credit unions have been increasing their exposure to alternative investments but are not expected to deliver returns as strong as last year amid COVID-19 uncertainty, industrial banking sources say.
POBA registered a return rate of 8.5 percent last year on alternative investments, up 4.5 percentage points from 4 percent in 2018, according to sources. Korean Teachers’ Credit Union’s return (KTCU) stood at 6.4 percent compared to 4.3 percent in 2018. Military Mutual Aid Association (MMAA), SEMA and The Police Mutual Aid Association (PMAA) recorded returns of 7.8 percent, 8.15 percent and 5.5 percent respectively.
Credit unions have continued to shift their focus from traditional assets such as stock and bonds to alternative investments in order to diversify their portfolios. The portion of alternative investments by POBA accounts for 54.6 percent of its total investment portfolio. The amount of investment also increased by about 700 billion won ($57 billion) last year from 2018.
KTCU’s portion of alternative investment is 44.9 percent of its portfolio, while for MMAA, SEMA and PMAA it is 46.5 percent, 63.2 percent and 51.1 percent respectively.
The investment environment of alternative assets has become less certain this year as COVID-19 has restricted movements among many economic players. The dismal global economic outlook has made it almost impossible for South Korea’s credit unions to reap interest and dividend profits from hotel and retail asset investments. The fair value of alternative investments is also expected to decrease this year.
“We are making alternative investments for survival this year and are making the most of our existing networks,” a chief investment officer at one credit union said. “We do not expect the same level of return as last year, though we need to wait and see how the situation will be evolved in the second half of this year.” (Reporting by Jin-won Lee)