[Institutional Investor Strategy] ① Police Mutual Aid Association Focuses on Stocks and Bonds with Easy Liquidity Management

Inflation Peak and Economic Slowdown to Continue
Conservative Investment in Alternative Assets Inevitable
Focus on Liquid Assets and Promote Real Estate Securitization

Asia Economy DB

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[Asia Economy Reporter Park So-yeon] As of the end of 2021, the Police Mutual Aid Association, managing assets totaling 4 trillion won, plans to raise its investment return target from the existing 5-6% range to a higher level, reflecting the high interest rate environment. They intend to devise creative investment strategies and actively implement them.

According to the investment banking (IB) industry on the 23rd, the Police Mutual Aid Association recorded investment returns of 5.2-5.6% over the past three years from 2019 to 2021.

The Police Mutual Aid Association has set a policy to increase investment returns to around 7-8% in the mid to long term, anticipating a decade of high interest rates and high inflation.

Financial markets undergo major transformations roughly every ten years, and the past decade was characterized by low growth, low inflation, and low interest rates. It was an era where a structure generating stable returns of 5-6% with moderate risk was acceptable.

Jong-seok Han, Chief Investment Officer (CIO) of the Police Mutual Aid Association, said, "Looking ahead to the next ten years, inflation is already moving, and high levels of interest rates have followed. As market interest rates rise, members' required returns are increasing, so we plan to put more effort into improving investment returns."

He added, "It is not about bearing moderate risk but bearing reasonable risk relative to expected returns. To achieve this, the expertise in the investment division must be strengthened beyond the current level, and creative investment opportunities must be explored, along with in-depth risk management."

He noted, "In the first half of this year, almost all asset prices fell, making asset management very challenging. One fortunate aspect is that inflation, which led the market decline throughout the first half, is judged to have nearly peaked."

He predicted that a certain level of economic slowdown and recession due to rising interest rates is likely to continue throughout the second half of the year. While traditional asset sectors such as stocks and bonds have already priced in a significant economic downturn, alternative assets often coincide with or lag the economy, so a cautious approach is advised.

He emphasized, "In the second half, we will strengthen investment activities focusing on stocks and bonds, which have reached appropriate valuation levels and are easy to manage liquidity. For the time being, financial alternative investments and real estate investments will be conducted with extreme selectivity and accompanied by exit strategies."

Since his appointment in October last year, CIO Han has secured leadership in asset management through organizational restructuring. He established an Investment Strategy Office to enhance understanding and access to macroeconomics. To execute rational asset allocation and derive effective strategies, he strengthened the investment planning and coordination functions under the financial director. The previously separate financial investment and business investment divisions were organically connected and supported through the Strategy Office.

Specifically, a stock management team was newly established within the Financial Investment Headquarters to secure independence in stock management. An Alternative Investment Team 2 was created to introduce a competitive system in the increasingly weighted alternative investment sector and strengthen existing asset management through appropriate alternative asset allocation. In the Business Investment Headquarters, Business Investment Team 2 was established to plan the smooth liquidity of existing invested real estate assets.

CIO Han was born in 1967, graduated from Seoul National University with a degree in Business Administration and completed graduate studies at the Business School. He has served as Vice President of K-Fin Asset Management, CIO of Meritz Asset Management, and General Director of Equity Management at KTB Asset Management. He was appointed as the Chief Investment Officer of the Police Mutual Aid Association on October 25 last year.

This content was produced with the assistance of AI translation services.