[In-Depth Look at Funds and Mutual Aid Associations] ④ From REITs to Private Credit... The Mutual Aid Association’s Agility Within Stability

First Korean Pension Fund to Invest in REITs... Exited Before the Global Financial Crisis
Declares a “Barbell Strategy” of Investing in Both Risky and Safe Assets
Strengthening Private Credit... Swift Market Response

Editor's NotePension funds and mutual aid associations have long established themselves as key players in the capital markets. While pension funds focus on securing retirement for the public and mutual aid associations aim to grow members' assets and expand welfare, there are also clear differences between the two in terms of asset size, investment strategy, and organizational structure. This article provides an in-depth analysis of pension funds and mutual aid associations, which serve as major sources of capital for leading institutional investors both in Korea and abroad.

The Korea Local Government Officials' Mutual Aid Association (KLGO Mutual Aid Association) invested approximately 5 billion won in May 2003 in Koramco Asset Trust's real estate investment fund, "KORAMCO CR REITs No. 3." This was the first time a domestic pension fund ventured into REITs (Real Estate Investment Trusts). Over five years, the association earned steady dividend income and, around Liberation Day in 2008, realized a pure capital gain of 10.8 billion won. In terms of return, this was one of the most remarkable achievements in the association’s history.

Exactly one month later, in September 2008, the major U.S. investment bank Lehman Brothers filed for bankruptcy, triggering the global financial crisis sparked by subprime mortgages. Some have said luck played a role, but ultimately, this episode demonstrated the association’s ability to make proactive decisions and became a symbol of its management philosophy: "agility within stability."

From Local Government Employee Welfare Fund to 30 Trillion Won Asset Manager

The KLGO Mutual Aid Association was established under the "Korea Local Government Officials' Mutual Aid Association Act" to support the welfare and livelihood stability of local government officials and administrative staff. At first glance, the name seems modest. The combination of "local government administration" and "mutual aid association" gives the impression of an ordinary pension-type welfare fund.

However, its scale is far from modest. Last year, its assets totaled 28.7691 trillion won, ranking it among the top mutual aid associations in Korea. This year, total assets are expected to reach 31 trillion won. Since its founding in 1975 with 80,000 members and assets of 1.2 billion won, the association has grown without pause.

70-80% of Assets in Safe Investments... Nine Consecutive Years of Surplus

Heo Jang, Executive Director and Chief Investment Officer (CIO) of the KLGO Mutual Aid Association, has repeatedly emphasized in interviews that "70-80% of assets are allocated to stable interest- and dividend-yielding investments, while the remainder is invested in high-growth areas such as venture capital and private equity." This structure means the association excludes mid-risk assets and makes bets on both ends of the risk spectrum. In other words, it secures cash flow through bond-type and income-type assets, while seeking alpha from a small number of aggressive investments. This approach aims to achieve the public goal of member stability while maintaining operational independence and not forgoing market returns.

The KLGO Mutual Aid Association has already been delivering stable returns. Last year, it recorded an average return of 9.1%, far exceeding the member retirement benefit rate of 4.92%. In 2022, when CIO Heo began his term and the KOSPI plunged by about 25%, the association still posted a solid performance. While most pension funds failed to generate returns, the association achieved a 3.9% return.

The association has maintained a surplus for nine consecutive years, and its reserve ratio exceeded 110% at the end of last year. Last year's net profit was 389.3 billion won, up 42.5% from the previous year. On the back of this financial stability, the association is gradually pursuing portfolio innovation.

Private Credit as a Future Growth Engine... Increasing Allocation and Establishing New Teams

The association has identified "private credit" as its next growth driver. CIO Heo has already publicly stated that the association will gradually reduce its allocation to real assets such as real estate and infrastructure, and will increase the share of private credit from the current 28-29% to 33.5% by 2029. In an environment of persistently high interest rates, private lending, which offers clear maturity and repayment structures and stable cash flows, is considered more suitable for member welfare-oriented fund management than REITs or real estate.

Recently, the association has also been reorganizing its structure to support this strategy. Next year, the investment organization will be restructured: the existing single credit investment team will be split into two, and staff expansion is under consideration. In contrast, the domestic real estate team and asset management team will be merged, reflecting the contraction of domestic development projects and a decline in new deals. Especially for real estate assets, the burden of long-term holding and an ongoing transaction freeze have prompted the association to decisively strengthen its focus on the private credit market.

Expectations for Swift and Quiet Innovation

While private credit is a common area of alternative investment expansion among institutional investors, the KLGO Mutual Aid Association is the only one so far to set such specific target figures and even reorganize its organization accordingly.

The association’s asset management has been characterized not by dramatic moves, but by a series of quiet, preemptive changes. Its early entry into the REITs market, successful asset sales just before the crisis, and the shift toward private credit have all contributed to the association’s reputation as a stable yet unexpectedly agile institution.