Korea’s Government Employees Pension Service (GEPS) plans to diversify its overseas alternatives allocations, with an eye to boosting its private equity exposure and making its first step into offshore hedge funds.
As part of its global push, the retirement fund this week signed a memorandum of understanding with Towers Watson. The consultancy will provide research and assessment on global investment opportunities in alternatives and assist in the due diligence process.
It is understood that GEPS – with $4.75 billion in investable assets – has not invested in hedge funds at the global level, although it is considering doing so, and it is also mulling a larger allocation to global PE.
That is a change of tune from around a year ago, when the fund said it was not ready to raise its international PE exposure, which stands at 2% of its total alternatives portfolio. In recent months, however, GEPS has said it aims increase the ratio to 6.8% next year and 7.8% in 2015.
The pension may have had little choice, as its liabilities have fallen short and have required government subsidies to remain operational. Raising its allocation to global alternatives may help narrow the gap.
GEPS’ move to work with global advisers is not new, with it having first announced in 2010 that it would seek foreign partners to collaborate on asset management, although not specifically for alternatives.
However, its 16% allocation to alternatives – higher than the NPS's 10% – means geographical diversfication would be key to mitigating risk. An advisory relationship should help it avoid missteps, such as its acquistion of Manhattan property at peak prices in 2007.
Towers Watson has other similar advisory relationships in Asia, such as the one it struck to help Thailand's Government Pension Fund (GPF) in 2011 with its foreign investment programme.
GEPS is following a major trend in recent years for Korean – and other Asian – institutional investors to raise their alternatives allocation. Fellow Korean entities, such as Korea Investment Corpoation, Korea Teachers Pension Fund and the National Pension Service, have been making similar moves. The same is true of institutions such as Malaysia's Employees Provident Fund and Thailand's GPF and Social Security Office.
GEPS' move indicates that smaller funds are now increasingly taking the plunge into alternatives, even including hedge funds. That said, “quite a few [smaller entities] have been investing [in alternatives] for some time, although this may have been less noticeable [than the bigger players' activity]”, says Jayne Bok, Asia head of sovereign advisory based in Hong Kong.
“There has been an increase in the work we've done in the offshore alternative investment sphere, but our relationships with clients are not restricted to just this aspect,” she tells AsianInvestor.
GEPS’ head of alternative investment fund management, Suh Woncheol, could not be reached for comment.
A former senior investment officer at NPS, Suh several months ago replaced Kee Hyuk-do, who is now at Seoul-based Hanwha Asset Management. Suh served at NPS from 2003-2007 and is said to have help founded the pension’s global alternative investment programme, which is now considered a forerunner among Korean sovereigns.