South Korea’s National Pension Service (NPS) has reaped the benefits of diversifying its investing to more foreign alternatives.
In its annual report the world’s third-largest pension fund revealed that for fiscal year 2016 its rate of return was 5.74 percent for domestic alternatives and 12.34 percent for global alternatives.
The allocation to alternatives has also increased by KRW 9 trillion ($7.98 billion; €7.13 billion) year-on-year to KRW 63.7 trillion for fiscal 2016. The alternatives allocation now sits at 11.4 percent.
International alternative assets now account for 65.5 percent of aggregate alternative assets and the investment in foreign alternatives rose by KRW 9.4 trillion year-on-year to KRW 41.7 trillion. By comparison, the investment in domestic alternatives fell by KRW 400 billion year-on-year to KRW 21.9 trillion.
The KRW 558 trillion pension fund also saw growth in its externally managed assets. As of end-December 2016, its indirectly managed assets stood at KRW 208.6 trillion, up from KRW 21.8 trillion at the end of 2015. Of that amount, KRW 56.5 trillion was entrusted to alternative investment managers.
Last year, the fund committed approximately 8 percent or about KRW 500 billion to Blackstone’s long-term private equity vehicle Blackstone Core Equity Partners, which is targeting $5 billion.
NPS also picked four domestic private equity managers to manage KRW 700 billion of its funds: VIG Partners and Skylake Investment each received KRW 250 billion to invest in large-cap companies, while Lindeman Asia Investment and SG Private Equity got KRW100 billion each to invest in mid-sized companies.
In January this year, NPS teamed up with sovereign wealth fund Korea Investment Corporation (KIC) and invested around €360 million in the latest vehicle of pan-European buyout firm BC Partners.
Additional reporting by Carmela Mendoza