NPS to triple global equities investment

Unveiling its asset allocation plan for the next five years, Korea’s National Pension Service is ramping up its exposure to international equities and fixed income, as well as alternatives.

Global equities will be the focus above all, with the NPS seeking to triple its investment from 2013 to 2017. As a counterbalance it aims to cut back on domestic fixed income.

The pension service expects equities to represent at least 30% of overall assets under management by the end of 2017, a rise of 6.8 percentage points from the present 23.2%.

Its domestic fixed income allocation would account for no more than 60% of AUM, from 64.5%, while international fixed income would increase to more than 10%, from 4.2%.

As part of this diversification agenda, the NPS will also be looking to more than double its exposure to alternative investments from 7.8% to over 10% of total AUM.

This is how it expects to achieve a slightly elevated annual target return over the five-year period of 6.6%, which takes into account an annual economic growth forecast of 3.5-4% and 3% annual inflation. At present the annual target return for the NPS is set at 6.5%.

The NPS’s new 2013-2017 blueprint was announced on May 31 by the fund management committee under the government’s health and welfare ministry.

If all goes to plan, the NPS will have increased total assets under management by 78.5% over the period to $531 billion at the end of 2017, from $303 billion at the end of last year.

That would mean that investment into equities would amount to at least $162 billion, from $70 billion now.

Breaking the asset class down, the NPS would increase global equities investment to more than 10% of total AUM, from 5.7%. In dollar terms, that equates to tripling its exposure to $54 billion, from $17.1 billion.

For domestic equity, the committee opted for a more modest increase from 17.8% of AUM to at least 20%.

Meanwhile NPS will also seek to increase exposure to alternative investments, including private equity, real estate and global infrastructure, from the current $23.5 billion to about $54 billion by 2017.

Looking further ahead, the NPS anticipates its AUM will have reached about $870 billion by the end of 2020, and $2.1 trillion by 2040.

One local professional suggested to AsianInvestor that NPS’s targets were highly achievable and would represent a natural progression over five years.

As such the NPS blueprint does not contain any surprises, but what it does do is confirm the direction the pension fund is headed as it moves to ramp up its international exposures.