[Fund and Mutual Aid Association Deep Dive] ⑤ Military Mutual Aid Association Surpasses 20 Trillion Won in Assets, Accelerates Alternative Investments

Active-Duty Soldiers Join, Soldiers' Salaries Rise
Record-High Assets and Membership Achieved Last Year
Steady Returns Driven by Aggressive Expansion in Alternative Investments
Alternative Investment Ratio Targeted at 85.2% by 2029

Editor's NotePension funds and mutual aid associations have long established themselves as key players in the capital market. Beyond their fundamental differences-pension funds focus on securing citizens' retirement, while mutual aid associations aim to grow members' assets and expand welfare-they also show distinct differences in asset size, investment strategies, 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 domestically and internationally.

The growth of the Military Mutual Aid Association has been rapid. Over the past five years, its average annual asset growth rate reached 12%, and last year, its assets under management hit a record high of 20 trillion won. The passage of the revised Military Mutual Aid Association Act expanded membership eligibility to include both active-duty soldiers and reservists. Coupled with the government's increase in military salaries, the association's scale has grown sharply.

Its investment strategy, centered on alternative investments, has also proven effective. Unlike other pension funds and mutual aid associations, which focus on stocks and bonds, the Military Mutual Aid Association has aggressively pursued alternative investments such as real estate, private equity funds (PEF), and venture capital (VC). This year, the association announced plans to allocate 77.7% of its assets to alternative investments, with a goal of increasing this proportion to 85.2% by 2029.

Assets Double in Seven Years, Surpassing 20 Trillion Won

The Military Mutual Aid Association was established on February 1, 1984, to promote the stability and welfare of military personnel and civilian employees. Starting with assets of 22.4 billion won, it reached 10 trillion won in 2017, and in just seven years, doubled its size to surpass 20 trillion won.

The association laid the foundation for its growth through large-scale investments in mergers and acquisitions (M&A), social overhead capital (SOC), and real estate development project financing (PF). After successfully closing major deals such as Kumho Tire, Doosan Infracore, and Jinro, it earned a reputation in the domestic capital market as a "master of M&A."

In 2017, as interest rates began to rise, the association proactively expanded its alternative investments, resulting in strong investment returns. In 2022, when returns on bonds and stocks both posted double-digit losses, alternative investments alone delivered a 9.4% return, helping limit the overall loss to just 2.9%.

Last January, the Military Mutual Aid Association reached a turning point with the amendment of its governing law. Previously, membership was limited to career military personnel and civilian employees, but the revision expanded eligibility to include those affiliated with national defense agencies, allowing active-duty soldiers to join. As a result, the association achieved a record-high membership of 210,000 last year.

The asset size also saw significant growth. Assets increased from 17.56 trillion won in 2023 to 20.4569 trillion won last year, a rise of about 3 trillion won. Robust alternative investment returns and the expansion of membership were key factors. An association official explained, "As the mid- to long-term portfolio increased alternative assets, illiquid assets grew significantly, and strong returns led to a larger asset volume for the Military Mutual Aid Association."

The assets under management are expected to continue increasing. Due to the previous government's policy of raising military salaries, the monthly pay for sergeants has risen to 1.5 million won this year. In addition, the current government is considering raising the starting monthly salary for junior officers from the current 2 million won to over 3 million won.

Military Mutual Aid Association Emerges as a Major Player in PEF and VC

By making alternative investments its main strategy, the Military Mutual Aid Association has become a major player in the PEF and VC industries.

Until 2023, the association had been cautious about investing in project funds managed by PEFs due to economic uncertainties such as high interest rates. However, with the expansion of assets under management last year, it began to strengthen its alternative investment-focused strategy. At the end of last year, the association participated as an anchor limited partner (LP) in Ecobit, which was acquired by a consortium of IMM Private Equity and IMM Investment.

This year, the association plans to increase its total blind fund commitments to PEFs and VCs to 480 billion won, and expand the number of delegated asset managers to 20, up by 90 billion won from last year. The entry threshold has also been lowered to encourage participation by small and mid-sized managers.

For the first time this year, the association publicly recruited delegated managers for blind funds in the construction investment sector, signaling its intention to aggressively pursue alternative investments.

Last year, the association officially launched the leadership of Park Hwajae, former executive of Woori Financial Group, as Chief Investment Officer (CIO) of the financial investment division. Over the mid- to long-term, the association plans to increase the proportion of alternative investments to 85.2% by 2029. Considering that the proportion of alternative investments was less than 50% last year, this represents an increase of more than 40 percentage points. In contrast, the proportions of stocks and bonds will both be reduced to below 10% by 2029, at 8.2% and 6.6%, respectively.