Korea pension CIOs call for more hands on deck
As Korean public pension funds boost their exposure to non-domestic investments, especially alternatives, the need for talented professionals to join the ranks has never been so important.
During AsianInvestor’s 13th Institutional Investment Forum Korea, held in Seoul on April 10, Park Dae-yang, chief investment officer at the W17.4 trillion ($15.3 billion) Korea’s Teachers’ Pension (TP), said it plans to increase the fund’s overall overseas exposure by one third to 40% by 2023.
However, Park expressed anxiety that its bid to shift assets offshore could be stifled by its lack of resources, complaining that, as a public organisation, it is limited on how they can build their own investment teams, due to government limits on budgets. “How are we going to have diversification of overseas assets when we don’t have enough people?”
Park added that such caps mean asset owners are more dependent on external resources than he believes is necessary.
“We will have to invest in global successful funds via domestic investment banks (IBs), because we have not been able to do sufficient research on [them ourselves],” Park explained. “[Also] because of the reporting needs and hedging reasons, we are going through the domestic IBs. But once we do have enough people, we may do direct deal sourcing ourselves.”
Park is referring to an operational model where the Korean asset owners work with domestic Korean asset managers affiliated with the investment banking groups. These asset managers invest into commingled funds of global asset managers, effectively mirroring their investments and making it similar to a fund of funds structure.
Alternatives currently make up 9%, of TP’s portfolio with a current ceiling of 20% of assets under management. That ceiling is likely to be raised to 30%, Park told AsianInvestor on the side-lines of the event, as the current low-yielding investment cycle looks to be extended by easing monetary in the US and Europe, as well as by the fiscal policy in People’s Republic of China.
In total, TP has four investment professionals dedicated to alternatives asset class, around one tenth of the manpower available to the Korea’s National Pension Service, which is also ramping alternatives investments overseas. As such, Park believes TP doesn’t have the bandwidth to conduct its own research on new alts asset managers as much as it would like.
Private competition
On top of staffing limitations on Korean public pension funds, demand for investment experts in alternatives is heating up. Given the relatively small pool of talent, such funds are struggling to compete with private employers with bigger wallets, explained Jang Dong-hun, CIO of Korea’s Public Officials Benefit Association (Poba).
Poba had assets under management of W12.9 trillion at end-2018, of which 58% was parked in alternatives. Jang would like to increase the control of future investments via more direct ownership.
However, in line with TP, such a strategy requires more capable hands on deck to manage assets rather than just monitor fund investments. In what may be a relatively unlikely scenario, Jang hopes that “young ambitious people” will go abroad to study, and then come back here to work for “public institutions and other services to society and the country.”
“Because the compensation in public jobs are not as good as the private institutions, the ones studying abroad will not come to the public institutions. It is difficult for an institution like ours to attract the right people, but I guess I have to appeal to the spirit of service,” Jang said.
TP’s Park agrees. He pointed out that pension funds in Korea will be among some of the fastest growing in the world in the next 10 to 20 years; that means a great amount of capital invested overseas will need to be managed. Park sees plenty of candidates, but due to the limited jobs available, he understands how young professionals automatically turn to the private sector.
“Our organisation has a pool of 130 to 140 people only, so every year we can hire five to six people,” Park said. “If we are lucrative enough, we will be able to hire more people – performance is linked to the number of jobs created.”