OPINION | For a multitude of reasons, the time is ripe for the Australian superannuation industry to engage with South Korea.
South Korea is Australia’s fourth-largest trading partner. The countries enjoy a free-trade agreement. We have an opportunity to build on this relationship with the provision of services, including financial, to augment the agriculture and mining trade that underpins this position.
The South Korean Government is committed to ensuring the nation is a major exporter of capital. One of the ways it is doing this is by having large, globally empowered asset owners, who can attract foreign asset managers. On top of awarding investment mandates, South Korean asset owners are actively seeking partnerships with foreign investors.
That is why IFM Investors recently opened a Seoul office, and appointed Kelly Ki Jeong Lee client relationship director for the country. The decision was supported by the reception we have already received from South Korean institutions.
IFM Investors has been successful in the market to date, in large part, I believe, due to our investor-aligned ownership structure.
Our presence will ensure we remain well positioned to partner with local clients seeking to diversify their investments offshore across infrastructure debt and equity asset classes for the long-term benefit of South Korean workers.
More than ever, clients across the Asian region are embracing investment models that take an investor-first approach to solving the asset-liability gap facing many pension and insurance schemes.
South Korea is the world’s eighth-largest pension market, just behind Australia. The National Pension Service (NPS), South Korea’s ₩535 trillion ($650 billion) national pension fund and prime social insurance program, is the world’s third-largest public pension fund and is on track to become the largest by the mid-2030s.
The South Korean institutional investment market is not only large and diverse, it also features highly sophisticated long-term investors that are particularly open to allocating to foreign managers.
Driving this is the need for returns, because performance in domestic assets has been poor for much of the last decade. The local equity market has essentially been flat over this period, while bond yields, especially on government debt, have been compressed for a number of years. Without the returns available at home, the large, liquid institutions have had to allocate to foreign assets to find the returns they need to fund pension liabilities.
South Korean institutions are no different than any of our other clients across the globe in seeking the highest possible net returns at the lowest possible risk. They also experience many similar challenges, such as the need to secure retirement income in a country with one of the most rapidly ageing populations in the world, while facing a low-return environment and market volatility driven by political uncertainty.
Less home bias
In response, local pension and insurance investors are reassessing their home bias and looking to non-traditional assets, such as infrastructure debt and equity.
IFM’s new Seoul office, our third in Asia after Tokyo and Hong Kong, not only serves to benefit our growing South Korean client base, it also underlines a commitment to the nation and the Asian region. For our existing investors, opening the South Korean office will broaden and deepen our client relationship across the Asian region. It will provide the ability to pool client mandates, opening further investment opportunities for all clients globally and allowing IFM Investors to negotiate better terms on deals.
Our continued growth is possible only because shareholders allow us not to be conflicted or confused by short-term needs.
Brett Himbury is chief executive of IFM Investors.