Korea Investment Trust Management Launches 'Korea Investment OCIO Alaseo Fund'

[Asia Economy Reporter Minji Lee] Korea Investment Trust Management announced on the 27th that it has launched the ‘Korea Investment OCIO Alaseo Fund’ to assist companies managing retirement pensions in the defined benefit (DB) type with their reserve fund management.

The ‘Korea Investment OCIO Alaseo Fund’ is a public offering fund that applies the concept of an Outsourced Chief Investment Officer (OCIO) to the management of retirement pension DB reserves. OCIO is a service where an external asset manager is entrusted with all or part of the asset management duties on behalf of the asset holder. This fund plans to provide a total solution encompassing goal setting, asset allocation, management, and post-management while acting as a proxy for managing corporate DB reserves and other funds.

This fund was launched to address difficulties companies face in managing assets (retirement liabilities) that must be accumulated in advance to pay retirement benefits to employees upon retirement. Companies that have managed retirement pension DB reserves mainly with principal-guaranteed products have experienced issues where the interest rates on principal-guaranteed products are lower than wage growth rates, causing expected returns to lag behind the increasing pace of retirement liabilities.

The fund calculates the expected average future increase rate of retirement liabilities by utilizing factors related to companies’ retirement pension liabilities and sets this as the management goal for the DB reserves. Korea Investment Trust Management developed the industry’s first ‘Retirement Liability Index’ for this purpose. This index is created based on retirement pension-related disclosure data (such as wage growth rates and discount rates) found in the business reports of 320 companies listed on the Korea Composite Stock Price Index (KOSPI) and KOSDAQ markets. The estimated expected increase rate of retirement liabilities for domestic companies over the next five years, based on 2020 data, is about 4% annually, and the ‘Korea Investment OCIO Alaseo Fund’ aims to achieve returns exceeding this rate. The expected increase rate of retirement liabilities is recalculated annually based on disclosed data, and the DB reserve management goals are reset accordingly each year.

The fund constructs an optimal portfolio combining an ‘Income-Seeking Portfolio (ISP)’ for interest rate risk management and a ‘Return-Seeking Portfolio (RSP)’ for managing liability growth rates, aiming for expected returns higher than the liability growth rate while maintaining low volatility. The ISP focuses on risk management by holding about 85% domestic bonds, while the RSP pursues medium risk and medium returns through diversified investments in global stocks, bonds, and alternative assets.

Wonseok Oh, head of pensions at Korea Investment Trust Management, said, “The Korea Investment OCIO Alaseo Fund is a product specialized for managing retirement pension DB reserves, and it manages returns stably against volatility with a clear management goal of the expected retirement liability increase rate over the next five years and a systematic management process. Starting next year, as the introduction of the retirement pension reserve management plan (IPS) and the establishment of a management committee will be mandatory for companies with 300 or more employees, this fund can provide great assistance to companies considering managing their retirement pension DB reserves in the form of OCIO.”

Furthermore, Korea Investment Trust Management plans to provide large-scale OCIO-level services to companies subscribing to this fund. They will support investment education, IPS (draft), management committees, and provide performance reports and market outlook materials. The annual total fee for the Korea Investment OCIO Alaseo Fund is 0.395% based on the DB-only class C-R2. There are no upfront sales fees or redemption fees. Subscriptions are available through Korea Investment & Securities starting from the 27th, and the number of distributors will gradually expand.