KoreaÆs NPS considers specialist mandates
The pension fund is looking to take advantage of declines in global asset prices as it gradually increases its risk profile.
The W210 trillion ($209 billion) National Pension Service, South KoreaÆs social-security fund, wants to take advantage of declines in prices across global asset classes. Insiders report the widening in credit spreads and fall in real-estate prices and stock markets, particularly in emerging markets, create a favourable environment to buy. Everything looks attractive except commodities.
The NPS is in the process of adding risk to its total portfolio, both internationally and domestically. Today over 80% of its assets are in low-risk fixed income, with around 17% in equities and the remainder in various alternative strategies such as private equity, infrastructure and real estate, but not hedge funds.
This is because it has such a long liability profile. It needs to find long-duration assets and tries to allocate with a multi-decade frame of mind. At the same time, its coffers continue to swell as national contributions pour in, forcing it to find new areas in which to invest. Because it can afford to suffer short-term swings in volatility, it will invest a rising proportion of new assets to equities and alternatives, as well as to higher-yielding corners of the fixed-income world.
From an equity perspective, the NPS is considering its first mandates to external fund houses that track themes or sectors. To date, its equities mandates have been either global or global emerging-market. But globalisation means that, in the long run, geography is less important; even leading companies from big emerging markets are now multinationals.
It is also mulling whether to mandate fund managers for credit-focused bond portfolios, as opposed to sovereign-only or generic aggregate strategies.
In the world of alternatives, the NPSÆ staff is in discussions with its investment-management committee to invest in hedge funds or funds of hedge funds. There are no regulatory barriers to its doing so, but the Ministry of Health, Labour and Family Welfare and other representatives on the committee have been cautious about derivative or shorting strategies. Nonetheless, some NPS staff believe they could get the go-ahead later this year, and they are already researching multi-strat funds and funds of hedge funds as a first port of call.
The NPS is in the process of adding risk to its total portfolio, both internationally and domestically. Today over 80% of its assets are in low-risk fixed income, with around 17% in equities and the remainder in various alternative strategies such as private equity, infrastructure and real estate, but not hedge funds.
This is because it has such a long liability profile. It needs to find long-duration assets and tries to allocate with a multi-decade frame of mind. At the same time, its coffers continue to swell as national contributions pour in, forcing it to find new areas in which to invest. Because it can afford to suffer short-term swings in volatility, it will invest a rising proportion of new assets to equities and alternatives, as well as to higher-yielding corners of the fixed-income world.
From an equity perspective, the NPS is considering its first mandates to external fund houses that track themes or sectors. To date, its equities mandates have been either global or global emerging-market. But globalisation means that, in the long run, geography is less important; even leading companies from big emerging markets are now multinationals.
It is also mulling whether to mandate fund managers for credit-focused bond portfolios, as opposed to sovereign-only or generic aggregate strategies.
In the world of alternatives, the NPSÆ staff is in discussions with its investment-management committee to invest in hedge funds or funds of hedge funds. There are no regulatory barriers to its doing so, but the Ministry of Health, Labour and Family Welfare and other representatives on the committee have been cautious about derivative or shorting strategies. Nonetheless, some NPS staff believe they could get the go-ahead later this year, and they are already researching multi-strat funds and funds of hedge funds as a first port of call.
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