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The NPS has just announced a strategic partnership with local private equity firm MBK Partners, a day after sealing a similar pact with US-based Oaktree Capital Management. The pension fund is also in talks with another yet-to-be named entity that could bring in an additional $3 billion in local investments.
MBK and the NPS will be working together to attract $2 billion capital for investments in Korea. The amount will be sourced in a fresh fund raising exercise, with MBK's funds mostly sourced from foreign pension and sovereign funds. MBK will likely put the $2 billion it raises to use in local investment projects such as infrastructure, in companies and in property.
MBK, which was founded by five ex-Carlyle executives led by Michael Kim who previously headed CarlyleÆs Asia practice, has around $2.5 billion under management. The firm focuses on acquisitions in Korea, Japan, and Greater China.
Oaktree, meanwhile, will be investing $3 billion in South Korea, an amount that NPS will match. Oaktree has around $58 billion in assets under management. The Los Angeles-based firm focuses on an opportunistic, value-oriented and risk-controlled approach to investments in niche debt strategies, specialised private equity, real estate, emerging market and Japanese securities, and mezzanine finance.
The state-owned NPS has around W229 trillion ($200 billion) in assets and is considered Korea's largest investor.
Steven Choi, managing director of Oaktree Capital (Seoul), says the firm is committed to expanding its investment efforts in Korea for the long-term and will be looking for opportunities across all asset classes.
ôIn particular, we are looking to work with domestic groups to provide financial solutions by combining global best practices and financial discipline, adapted to the local situation,ö Choi says.
The NPS expects the investment agreement with Oaktree and MBK to have a positive effect on the local foreign exchange and other financial markets. Investments from Oaktree, for one, would bring much-needed US dollars into the financial system. MBKÆs new fund raising effort, meanwhile, is expected to generate interest from investors overseas.
Although the partnership between the NPS and Oaktree focuses on investments in Korea, in the future, the two could venture into other markets.
The NPSÆs decision to look for domestic investment opportunities in the interim comes at a time when it is under pressure for it to meet its liabilities. Last month, the pension fund said it expects annual returns to fall for the first time since 2005 largely due to the impact of the global financial crisis.
Earlier this year, the NPS embarked on a process of adding risk to its total portfolio, both internationally and domestically. Around 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. The mix of NPSÆs assets has to do with its long-term liabilities.
Last year, the NPS formed strategic relationships with Credit Suisse Asset Management and Morgan Stanley Investment Management in a bid to broaden its exposure globally and to benefit in the areas of training in portfolio investing and research.
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