Korea's National Pension Service (NPS), the $283 billion state pension fund, has appointed BlackRock, Credit Suisse and Nomura to what is believed to be its first formal panel of transition managers, AsianInvestor has learned.
BlackRock is a recognised leader in fixed-income transitions, and the same can be said for Credit Suisse on equity transitions, while Nomura can offer particular expertise on the Japanese market and risk pricing through its proprietary desk.
The three transition managers declined to comment for this article, and the NPS did not respond to requests for comment.
Well-placed sources say that nine firms in total pitched for the business from the fund, with the others being Bank of America Merrill Lynch, BNY Mellon, Goldman Sachs, JP Morgan, Morgan Stanley and Russell Investments.
The finalists comprised BlackRock, BNY Mellon, Credit Suisse, Goldman Sachs, Morgan Stanley and Nomura, says one source. It is not clear whether any other firms were successful in their bid apart from the trio already mentioned.
Transition management (TM) is a service whereby sell-side institutions help buy-side firms transition a portfolio of securities. Various events – including acquisitions, management changes or shifts in investment strategy – can cause the need for a portfolio to be transitioned.
The decision by NPS – made in early March – fits with what some see as a growing trend for large Asian institutions to use specialist TM providers and to consider setting up a formal ‘panel’ of firms to use on a regular basis. (See also features in the December 2010 (page 44) and April 2011 issues of AsianInvestor magazine.)
It tends to be the biggest entities that set up formalised panels, as smaller institutions don’t need to carry out transitions in the size or frequency to make doing so worthwhile, nor do they necessarily have the resources to analyse the pros and cons of quotes from the different providers.
The NPS's move also fits with its relatively sophisticated investment approach; the organisation has often been an early mover among its domestic peers in terms of portfolio strategies (for instance, it is a big supporter of socially responsible investing).
AsianInvestor recognised the fund's pioneering nature by naming it as institutional investor of the year in the magazine’s inaugural Korea awards this month, the write-ups for which will appear in the April issue of the magazine.
The benefits of using several transition managers include that an institutional investor can use different providers depending on their area of expertise and on the types of assets being transitioned, plus that they can compare deal quotes and performance over time.
The NPS is likely to have a lot of transitions to do, given its plans to increase by over a third the amount of assets managed externally and boost its allocation to foreign assets, as reported by AsianInvestor in January.
The fund – set up to finance pension benefits such as old-age pension, survivors' pension and disability pension for insured individuals – expects to see its AUM grow by 6% this year to W336 trillion ($300 billion). It aims to have 30% of that figure, or $90 billion, outsourced; it had $66.3 billion outsourced at the end of October.
The proportion of overseas assets it plans to outsource (90% for equity and 60% for fixed income) is a lot higher than that of domestic investments (55% for equity and 8.5% for fixed income).