The Teachers’ Pension fund in Korea is seeking to set up a dedicated overseas investment team and may allocate to global hedge funds by the end of this year.
The $11 billion fund, one of two managers set up to manage the retirement savings of Korean teachers, confirms its long-term goal is to in-source all investments.
Park Min-Ho, appointed as chief investment officer last year, reveals that the fund has plans to make structural changes based on its need to expand exposure into international markets.
At present, 55% of the firm’s AUM is allocated to fixed income, of which 95% is domestically focused. Similarly it has 28% exposure to equities, but just 13% of that is invested in international markets.
Park told AsianInvestor about the fund’s aggressive plan to dilute its bond holdings to 43% and increase equities to 35% by 2017. By that time it hopes to have increased its global equities exposure by a full 10 percentage points.
“We plan to set up a dedicated overseas investment team and so are hoping to recruit more professionals with experience in investing overseas,” Park says.
“Over the medium-to-long term we want to in-source investments so our outsourcing team will eventually be dispersed internally. We want our domestic teams to be classified by asset class, and there to be a separate team for overseas investment.”
The Teachers’ Pension runs a lean operation, with just 30 employees in total, of whom 21 are investment managers and nine are strategists and support staff.
Its outsourcing team is six-strong at present. They rely on Zeroin to provide qualitative evaluation of managers and do all the qualitative assessment themselves.
In terms of alternative investments, its overall allocation stands at 16% of AUM. It plans to raise this to 20% by 2017.
Currently infrastructure makes up the largest portion of allocated capital at 35%, followed by private equity (30%), real estate (25%) and commodities/others (10%).
Park confirms that overseas private equity and overseas real estate are top of its list for future investment. But he notes, too, that the fund is open to investing in hedge funds internationally, rather than domestically.
“The Korean hedge fund market is relatively small. There is no depth. But there are plenty of good hedge fund players overseas that we would like to invest in.
“The overseas market is growing very fast and is well understood, which is one reason why we are thinking about hedge funds.
“Performance has been poor in recent times, but if the environment becomes more conducive we could get things started. We have not made any decisions yet, but before the end of this year we could have made our first hedge fund investment.”
The Teachers’ Pension was established in 1974 to improve the welfare of Korea’s private school personnel. It saw its AUM increase 3.99% last year to $11 billion.
Overall there are four Korean public pension entities: the Teachers’ Pension, the National Pension Service, Government Employees Pension Service and the Military Mutual Aid Association.