[Institutional Investment Strategy] ② Hangjeong Gongjehoe Increases Liquid and Interest-bearing Assets

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[Asia Economy Reporter Park So-yeon] The Korea Local Government Officials’ Mutual Aid Association, managing about 20 trillion won in funds, plans to increase liquid assets and interest-bearing assets that guarantee continuous income such as interest and dividends to respond to the uncertain investment environment.

On the 24th, Heo Jang, Chief Investment Officer (CIO) of the Mutual Aid Association, expressed concern, saying, "The atmosphere has improved a lot in the past month or two, but believing it will recover this quickly is too naive."

Heo said, "Since the 2008 financial crisis, money has been flowing for nearly 15 years. We have endured due to unprecedented financial easing in history. If we compare it to a patient, it’s like having taken only painkillers instead of treatment for 15 years, and it doesn’t seem the aftereffects will end within six months after stopping the painkillers."

Heo predicted that the aftereffects would continue for a considerable period. However, from an institutional perspective, he said that they have learned from experiences such as the financial crisis and COVID-19 that a market crash is an opportunity. Still, "the inflation situation is the first in 40 years, so the current situation is tough for everyone," emphasizing, "In an uncertain environment, the first mission is to maintain asset soundness."

He added, "In the case of the Mutual Aid Association, the alternative investment ratio is currently about 80%, and since all of it is already invested, it is difficult to withdraw immediately. Some sales and recovery decisions are necessary, but above all, what we can do now is new investment."

For the time being, they plan to focus on maintaining an appropriate liquidity ratio in the portfolio. Heo said, "The primary strategy is to secure liquid assets that can be converted into cash," hinting that a typical example is increasing short-term loans or corporate bonds.

Secondly, he mentioned, "If it is difficult to generate returns from equity assets such as stocks, it is important to secure interest-bearing assets that can offset financing costs, i.e., interest burdens."

He said, "We need to continuously increase the scale of assets that pay interest or dividends. From an institutional perspective, in the long term, stocks may rise or fall, but it is advantageous to hold more certain assets than many uncertain ones."

He continued, "By increasing the proportion of assets that periodically generate cash inflows and setting interest rates higher than interest payments, even if the value of held stocks falls, we can leave them unsold and fill the gap through interest-bearing assets."

Seventy percent of the Mutual Aid Association’s funds come from members’ regular savings, and 30% from fixed deposits. Heo said, "The average funding cost is about 3.7%, so we need to find interest-paying assets with yields higher than this."

Additionally, he urged adherence to three basic investment principles. Heo said, "When others are enjoying a boom, reduce investments, and conversely, when things are very bad, gradually increase investments to achieve successful long-term investment."

He advised, "For value investing, for example, if you judge Samsung Electronics’ fair value to be around 80,000 won, you should buy it in the 60,000 won range. When buying, do not purchase all at once but split the purchase into five times to reduce judgment errors."

Finally, he said, "You should always consider what kind of funds you are investing. Whether a person with 10 billion won is investing 1 billion won in a risky investment or if 1 billion won is their entire fortune and they are investing cautiously, you must carefully examine the nature of the funds before making investment decisions."

Meanwhile, Heo Jang graduated from Seoul National University’s Business Administration Department in 1987 and completed a master’s degree in the same department in 1989. He has held positions such as Head of Securities Division at Samsung Life Insurance in 1996, Head of Equity Management at Prudential Asset Management (now Hanwha Asset Management) in 2006, CEO of Tempis Investment Advisory in 2011, Head of Investment Business at DB Insurance in 2013, and Vice President of Amberstone Co., Ltd. in 2021. Since February 2022, he has been serving as CIO of the Mutual Aid Association.