South Korean insurance companies are expanding investments in U.S. asset-backed securities in search for investment returns amid protracted low interest rate environment. They reportedly have invested a total of 1 trillion won ($855 million) so far this year.

According to investment bank industry sources on Monday, Shinhan BNP Paribas Asset Management Co. and Hyundai Investments Co. plan to create a private debt fund worth 400 billion won in mid- or junior- tranche to join the pool of investors to 10 Hudson Yards, a skyscraper located in New York City.

They will invite institutional investors including local insurance firms from the end of this month for fund-raising, and a number of local insurers reportedly are already mulling participating in the project. The annual expected return rate is between 4 percent and 5 percent.

The 10 Hudson Yards is the first building of New York’s landmark Manhattan Tower project. It is 270 meters tall, standing 52-floor above ground, with total area of 158,000 square meters. It is valued at 2.5 trillion won.

In addition, six Korean insurance companies including Nonghyup Life Insurance Co. invested about 240 billion won in 10-year senior mortgage-backed bond backed by the Atlantic Building located in Washington D.C. The bond promises annual return in 4 percent range.

Last month, three of Korean insurance companies together invested about 230 billion won in senior mortgage-backed debt of medical building located in a major city in the U.S. And another group of insurers including Mirae Asset Life Insurance Co. invested about 93 billion won in junior mortgage-backed debt of Hotel del Coronado, a landmark resort in San Diego, the U.S.

The mortgage-backed bonds are popular among investors who seek stable returns on investment as they react less sensitively to the price change in real estate properties unlike stocks with a high risk and a high return. And conservative investors such as insurance companies find them as attractive investment portfolio that the mortgage-backed bonds also have less effect on risk based capital ratio, which shows an insurer’s financial health, compared to stocks, said an unnamed industry expert.

By Song Gwang-sup

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