South Korea’s National Pension Service ups alternatives

The world’s third largest pension fund is looking to increase its alternatives investments in emerging markets in Europe and Asia.

South Korea’s National Pension Service (NPS) has increased its exposure to alternatives by as much as 17.2 percent compared to the previous year, it said in its latest annual report.

The pension fund’s alternative investments accounted for 10.7 percent of its total asset portfolio in 2015, equivalent to KRW 54.7 trillion ($46 billion; €42 billion). Of that total, real estate took the biggest share at KRW 15.5 trillion, followed by private equity at KRW 9.1 trillion and infrastructure at KRW 7.1 trillion.

For the first time in 2014, the fund’s foreign investments had exceeded that of domestic investments. In 2015, foreign investments accounted for 60 percent of its alternative asset portfolio.

According to Korean news agency Yonhap, NPS is also setting its sights on undervalued emerging markets assets to broaden its portfolio as it seeks higher returns. It is looking to boost its overall rate of return to 5 percent this year, compared with last year’s 4.6 percent.

Chief investment officer Myun-wook Kang, who had just been appointed in February, said NPS plans to look into alternative assets in Latin America later this year. Kang also said China, Vietnam and Indonesia are among its potential markets in the future. He added that NPS is determined to increase its share of overseas assets in its total investment portfolio, from 24.3 percent in 2015 to 35 percent by 2021.

The $446 billion pension fund’s overseas assets include Gatwick Airport and 40 Grosvenor Place in the UK, Sony Center in Germany, Pacific Century Plaza in China, Jem Mall in Singapore, and the EastLink Toll Road in Australia.

In South Korea, NPS has made fund investments to Mirae Asset Management, VIG Partners, MBK Partners, IMM Private Equity, Korea Biotech Investment Capital, Unison Capital and Q Capital Partners, it said in its annual report

Among global funds, NPS has committed capital to EQT VII, Carlyle Europe Partners IV, Hamilton Lane Co-investment Fund III and HgCapital 7, according to data from PEI Research & Analytics.

This month, South Korea’s financial regulator, the Financial Services Commission (FSC), announced it is allowing the public to invest in fund of funds that invest in private equity. When the proposed measure is implemented, individuals will be able to invest a minimum of KRW 5 million ($4,200; €3,700) in a private equity fund, which could account for up to 20 percent of the private equity fund’s total value.