Korea's NPS targets growth in outsourced assets

Korea’s National Pension Service (NPS) is targeting a 36% year-on-year increase in outsourced assets in 2011 as it makes a concerted push into alternative investments.

The pension fund’s management committee is anticipating growing its AUM by around 6% this year to W336 trillion ($300 billion), and aims to have 30% of it, or $90 billion, outsourced. It had $66.3 billion outsourced at the end of October 2010.

In terms of its domestic equity investments, almost $30 billion will be outsourced, which equates to about 55% of NPS’s investment in the country’s stock market – a five percentage point increase on 2010.

It also plans to increase outsourcing in local fixed income investments by 2.5 percentage points to 8.5%, or $16.2 billion, as it wants to pursue more aggressive credit investments this year. This lower percentage indicates that the NPS manages most of its local bond investments internally.

With respect to overseas investments, its outsourcing percentages are far higher in both equity and fixed income assets. In 2011, the NPS plans to outsource about 90% of its total overseas equity investments, or $17.8 billion, and about 60% of its planned fixed income investments.

For alternative investments, the fund will make a big move this year, outsourcing up to 80% in both domestic and overseas investments, or $18.75 billion, from just 7.5% in 2010.

It is understood that among NPS’s alternative investments, it plans to allocate about $1.34 billion for various private equity and venture capital funds in 2011, most of which will be outsourced.

The fund’s overall strategy is to increase its allocations to equities, alternative assets and overseas investments and to decrease in fixed income.

All in all, NPS’s 2011 allocations are listed as follows: domestic stocks (18%, from 16.6% in 2010); domestic bonds (63.5%, from 67.8%), overseas stocks (6.6%, from 5.1%); overseas bonds (4.1%, no change); and alternative investments (7.8%, from 6.4% in 2010).

Over the next five years, the NPS is aiming to have its overseas equities allocation make up more than 10% of its overall AUM. The figure stood at about 6% at the end of last year.

It is also striving to swell the ranks of its 19 million subscribers.