Money flocking to pension-type funds, ESG investments

Korea Investment Credit Focus ESG Fund [Photo provided by Korea Investment Management]

South Korea’s public offering fund market is slowly beginning to recover with growing interest in funds that invest in the corporate bonds of ESG top-rated companies and long-term pension-style funds such as Outsourced Chief Investment Officer and Target Date Fund securities.

According to data from FnGuide on Sunday, Korea Investment Credit Focus ESG Fund topped the list in terms of funds raised so far this year. The fund has so far attracted 379.8 billion won ($289.2 million) from investors this year. Including this fund, a total of nearly 600 billion won has flowed into OCIO and TDF products. OCIO is a fund that combines long-term investment strategies required for pension fund management with equity funds. TDF is a financial product that automatically adjusts the asset allocation within the fund to the investor’s target date.

The Korea Investment Credit Focus ESG Fund, established in 2008, is a representative long-term fund of Korea Investment Management Co. As of April 13, the fund’s net asset value stood at around 1 trillion won. The fund mainly invests in domestic high-grade corporate bonds with an ESG investment rating of A or higher.

As of February, the fund recorded a three-month return of about 4 percent. This fund has attracted investors who want higher returns than money market funds (MMFs) or short-term bond funds.

This fund is noteworthy for the growing interest in funds that invest in ESG themes this year. According to NH Investment & Securities Co., about 1.13 trillion won has flowed into domestic ESG exchange trade funds (ETFs) in 2021, but the amount is significantly lower than 38.9 billion won last year.

NH-Amundi Asset Management’s Allright Earth OCIO Asset Allocation Securities [Photo provided by NH Investment & Securities]

OCIO funds are also one of the leading funds that have received attention this year. OCIO funds apply the method of managing funds that government, corporate and university funds have accumulated to public offering funds. The fund is managed based on the mid- to long-term asset allocation plan that meets the target rate of return and the appropriate allowable risk limit.

The fund is designed for companies that have adopted defined benefit retirement plan where the company manages the retirement fund, but recently, a number of public offering funds have been launched that allow individual investors to put money into the fund regardless of the fund size.

NH-Amundi Asset Management’s Allright Earth OCIO Asset Allocation Securities, which has an annualized target return of 5 percent, is a new fund set up in March last year, but has attracted 120 billion won since the beginning of this year.

KB Asset Management’s Dynamic TDF 2030 has also received the most funds among TDFs, with 84.7 billion won this year. TDFs adjust their portfolios as an investor approaches retirement age by reducing the allocation to risky assets, such as stocks, while increasing the allocation to safe assets such as bonds. The funds are labeled with a number, which indicates the year the investor expect to retire.

The domestic public offering fund market is showing signs of life. According to the Korea Financial Investment Association, the total net assets of public offering funds reached 327.6 trillion won in the first quarter of this year, returning to the 300 trillion won mark. This is an increase of 44.5 trillion won from the end of last year.