Korea’s National Pension Service (NPS) needs to add more portfolio management professionals to achieve ambitious expansion targets but may find hiring difficult as it relocates its fund management centre, worries its former chief investment officer.
Lee Chan-Woo, who was CIO for three years at NPS before leaving last October but is eager to return to the asset management industry, oversaw a 52% staff increase during his tenure, with personnel at the $390 billion retirement fund rising to an all-time high of 191.
But Lee tells AsianInvestor that while this expansion was unprecedented, NPS will need to continue to strengthen its bench of portfolio managers if it is to continue to grow.
However, he suggests that the pending move by NPS to relocate its fund management centre from Seoul to North Jolla province in the country’s southwest by 2016 – a government initiative – will create human resource headaches.
Lee raises the risk of a potential brain drain at NPS in the short term because of the move away from the capital, which he believes may make it more difficult to hire senior professionals. However, he also expects that a system will eventually be set up to remedy the situation.
NPS has already stated plans to increase AUM to $600 billion by 2018 on the back of an aggressive allocation plan, including raising domestic equity exposure to 20%, from 18.7%, and global equity investments to 10.5%, from 8%. These shifts will be funded by paring its exposure to domestic bonds to 54.2%, from 60.2%, and global bonds to 4%, from 4.7%.
Lee’s time at NPS was marked by a drive to diversify into more global and alternative investments, partly in recognition that the entity was overly exposed to domestic fixed income.
He oversaw an 18.1% increase in foreign investments from $38 billion at the end of 2010 (12.5% of total AUM) to $70.8 billion as of last August. Over the same period, NPS doubled its alternatives exposure from $18 billion (5.8%) to $36 billion (9.2%).
Between 2010 and 2013, NPS saw its AUM rise 27%, from $308 billion to $390 billion. Its annual returns were 10.4% for 2010, 2.3% for 2011, 7% for 2012 and 1.51% up to August 2013. Moreover, it was a period that saw the entity establish landmark offices in New York and London in 2011 and 2012, respectively.
Still, Lee sees his chief contribution at NPS as more related to qualitative improvements. By way of example he mentions diversifying its alternatives exposure. Whereas NPS previously invested only in buyout funds with large-cap assets, it has since expanded into mid-cap, mezzanine and secondary assets.
It also expanded its real estate assets from office investments to multi-family residential housing, shopping centres and logistics.
Lee adds: “I made a lot of effort during my tenure to pass internal guidelines that will allow [NPS] to invest in hedge funds, but regrettably I had to pass the mission to my successor.”
On a personal note, Lee says he has been enjoying his leisure time since retiring from NPS, although he will soon begin working as an adjunct professor at a local university in March. But this is a part-time role, and he is also open to participating in research and consultancy projects with either local or foreign entities.
On a separate note, last month NPS appointed Yang Young-Sik as head of its global private market investment division, replacing Lee Yoon Pyo, who held the post for four years and has become head of strategic investment. Yang was formerly responsible for alternative investments domestically. Lee Kyung-Jik continues in his role as head of global public market investment.
NPS named Hong Wan-sun as CIO to replace Lee with effect from November 4, as reported. He is due to serve a two-year term, with a possible one-year extension. Competition was reportedly fierce for the CIO position, with 22 applications including some from foreign nationals.
Hong was most recently vice-chief executive at Hana Bank, overseeing capital market investments, a position he had held since 2010.