POBA sends $100m to Alcentra and Ares

Mezzanine investment is at the upper end of POBA’s risk-return appetite when it comes to debt.

South Korea’s Public Official Benefit Association (POBA) has selected two asset managers to manage a total of $100 million of mezzanine debt in Europe and the US.

The pension fund will allocate $50 million each to Ares Management’s Ares Private Credit Solutions fund and Alcentra’s Clareant Strategic Credit Fund, according to a POBA source.

Ares Private Credit Solutions is targeting a total corpus of $2.5 billion and will invest in subordinated and mezzanine debt in North America. The fund has received $250 million from Virginia Retirement System, according to PDI data.

Alcentra’s Clareant Strategic Credit Fund was launched in 2015 targeting a total corpus of €500 million. The fund invests in stressed and distressed corporate debt and structured credit in Europe. It has a three-year investment period followed by a three-year harvest period.

At an interview with PDI earlier this year, Dong Hun Jang, the chief investment officer of POBA, told PDI that although private equity potentially generates a higher return, private debt provides more stable income and cash flow to pension funds like POBA. He also noted that mezzanine investment is the upper limit for POBA in terms of the risk-return profile.

The mezzanine allocation accounts for 6.4 percent out of the pension fund’s overseas private equity fund allocation of 16.5 percent, according to a POBA presentation. POBA made its first overseas mezzanine commitment in 2015 and its total commitment to the asset class reached $160 million by the end of last year.