Korea’s Teachers’ Pension (TP) fund has set ambitious targets to ramp up allocation to global securities and alternative investments in a drive to squeeze higher returns from its portfolio.
The firm, which has W16.3 trillion ($13.8 billion) in AUM, has set out to achieve a 47.5% increase to international and alternative exposures.
As such it has been restructuring the make-up of its internal teams and strengthening its risk management division.
Last year TP saw a 2.65% return, underperforming both the National Pension Service (5.25%) and the Government Employees Pension Service (3.6%).
In the first half of 2015 TP’s returns improved to 5.57%. It came after the firm had more than doubled allocation to overseas investments since the start of last year, from W859 billion to W1.8 trillion.
In a press conference last week, TP’s chief executive officer Kim Hwa-jin revealed that by 2017 it would raise its global allocations to 16.6% of its portfolio, from 9.9%, and alternative exposures to 20%, from 14.9%.
It means that with the next two years the two asset classes will make up more than a third of its TP’s overall securities exposures, at 36.6%.
Last December TP relocated its head office from Seoul to Naju city in South Jeolla province, relocating about 150 staff and operations with the exception of asset management. About 35 asset management professionals remain in the capital and will do so for the foreseeable future, according to the pension fund.
This is part of a government initiative to decentralise commercial opportunities away from Seoul. Korea's $418 billion National Pension Service has already outlined plans to move to Jeonju City next year, as reported.
At the end of 2014, TP divided its alternative investment division into separate corporate finance and real asset teams, while seeking to expand its pool of investment specialists and researchers.
Already they have allocated 10 of 30 professional managers to alternative investment, indicating the focus it has put on this area. TP also recently hired manager for international alterntives, while futher hiring is still in the planning stages.
TP is setting out to raise its allocation to alternatives from 14.9% at the end of last year, to 17% by the end of 2015 and 20% by the end of 2017.
“We have reorganised our overseas investment division into two, one for bonds and stocks and the other for alternatives,” explained Kim at the conference.
He noted, too, that the firm had moved to switch its risk management department to fall directly under the remit of the CEO office. Previously it was under the business management division. This will enable the CEO's office to control and monitor risk management directly.
Separately, he added that TP would seek to be more proactive in fulfilling its corporate social responsibilities in accordance with its internal guidelines, ensuring it maintains independent decision-making and voting rights.
In terms of fixed income, TP is seeking to reduce its exposure to domestic bonds from 49.7% at the end of last year to 33.3% by the end of 2017. It is also aiming to raise allocation to international fixed income to 7.93% over the same period, from 4.3%.
As for equity, by the end of 2017 it is striving to raise domestic exposure to 28.05%, from 23.6% currently, and to increase international allocation to 8.54%, from 5.1%.
At present, fixed income accounts for 51.4% of its portfolio, equity 31.5% and alternatives 14.9%. The remainder is made up of cash.
TP provides pension fund services to more than 280,000 members.