South Korea’s Public Official Benefit Association (POBA) plans to increase its allocation to private debt by $300 million-$400 million in 2017.
A total of $300 million-$400 million will be added to CLOs, senior secured lending funds and structured notes next year, while the organisation’s existing $120 million allocation to mezzanine debt will remain the same, according to Dong Hun Jang, chief investment officer of POBA.
An open selection process for three to four private debt fund managers is expected to take place in January next year. The pension fund is looking at funds that will invest in senior secured debt in the US and Europe with a minimum return of five percent per annum.
Jang thinks although private equity potentially generates a higher return, private debt provides more stable income and cash flow to pension funds like POBA. He also notes that mezzanine investment is the upper limit for POBA in terms of the risk-return profile.
This year, POBA has committed over $640 million to private debt investment outside the real assets category. This has included $120 million to private debt funds, $100 million to CLOs, $120 million to mezzanine debt, and about $300 million to structured notes.
Real estate and infrastructure debt allocations are part of the real assets bucket.
So far, the US accounts for more than half of POBA’s private debt allocation while Europe accounts for 20-30 percent.
Fund managers selected by the organization this year have included Benefit Street Partners, Babson Capital Management, Permira, Crescent Capital Group, Falcon Investment Advisors and GoldPoint Partners.