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Korea public officials’ fund eyes private debt even when Fed cuts rates

By Hui Ching-hoo   
June 12, 2024

South Korea’s Public Officials Benefit Association (POBA) is looking to private debt to enhance yield even when the US Federal Reserve eventually moves to cut interest rates, according to Simon Huh, chief investment officer of the US$16 billion pension and welfare fund for local government employees.

Huh said deglobalisation and technological innovations, especially in artificial intelligence, are leading to shifts in global supply chains and making US monetary policy unclear.

“I don’t know how fast the [US] interest rate will drop, but the first assets we’re looking at is private credit,” he said at the Korea Pensions and Investment Forum organised by Asia Asset Management in Seoul on May 30.

Bond yields drop when central banks cut interest rates. But Huh suggested that yields on private debt are high enough for investors to continue to park money in the asset class.

“It’s an important mission for [institutional] investors to enhance investment return. From that perspective, private credit is the most excellent field in terms of historical risk-adjusted returns. This is due to the disintermediation phenomenon,” he said.

Disintermediation is the process where companies raise financing by issuing private debt instead of borrowing from traditional intermediaries like banks.

Huh said POBA will also keep an eye on opportunities stemming from dislocations in Korea’s private and public markets and invest in secular growth sectors such as artificial intelligence through its equity strategies.