The National Pension Service (NPS) has appointed two heads to lead its newly divided global investment division and will go on a hiring spree for nearly 40 new executives, as it seeks to add to several business units and aggressively expand its offshore investments, AsianInvestor can reveal.

The Korean institution is also splitting its alternatives risk management division into two.

The world's third-largest pension fund, which had W772 trillion ($700 billion) in assets at the end of October, has split its overseas public market division into two to facilitate foreign investments.  One half will be dedicated to overseas public equities while the other focuses on overseas fixed income. The latter will have three sub-teams of treasury, credit and foreign exchange, a company spokeswoman told AsianInvestor.

HJ Lim, who previously ran NPS's overseas public markets, has been appointed head of overseas equities, while Jung Jae-Young, who currently runs NPS's London office, will become head of overseas fixed income, the spokeswoman said.

Jung will combine his duties of overseeing international fixed income with his role managing the London office until NPS names a new head. When that person has been picked, Jung will relocate to NPS's head office in Jeonju, Korea to take up his new post, the spokeswoman said. 

Once fully ensconced in their new jobs, Lim and Jung will be tasked with building out the pension fund’s international personnel, as it looks to ramp up investments.

“We plan to increase overseas assets, so we are getting our act together and replenishing manpower. We will add staff by hiring 38 experts this year,” said the spokeswoman.

She clarified that the additional staff will be split across several business units in addition to overseas public markets, including domestic markets and some back office functions. The spokeswoman declined to disclose the number of overseas-focused investment executives currently employed by NPS.

NPS is keen to expand its in-house investment. It intends to increase its internally managed portfolio which accounts for 35% of its overseas equity investment as of September 2020. Similarly, it plans to use internal staff to invest more of its overseas fixed income assets, the Asia head of an asset management business told AsianInvestor. The spokeswoman confirmed the remarks.

The pension fund is also splitting its risk management oversight of alternative assets into a real asset risk management team (which focuses on real estate and infrastructure) and a private risk management team (that focuses on private equity and private debt). The spokeswoman said the division was intended to strengthen its risk management capacities in both areas.

NPS’s alternatives investment divisions will remain the same, delineated into the three asset classes of private equity, real estate and infrastructure. The pension fund does not segment them between domestic and foreign, she said.

THE RATIONALE

The reorganisation reflects NPS’s increasing focus on building its overseas investments.

The pension fund has stated that it aims to increase overseas investments to around 55% by 2025. It has a lot of work to do; as of the end of October last year it had about W280 trillion, or 36% of total assets, invested offshore.

It would need to shift another W146.68 trillion, or $130 billion, into overseas assets in four years to reach its goal – and that is before taking into account the fact NPS’s asset base is growing each year, due to pension contributions and investment returns.  

The pension fund anticipates that its larger overseas teams will help it grow its overseas equity position from 22% of its portfolio (as of late 2020) to 35% in 2025, while expanding overseas fixed income from 5% to 10%.

The decision to grow offshore debt might seem odd amid historically low rates, but it reflects a NPS’s desire to continue find credit opportunities that return more than Korea’s ultra-low local government bond yields. To help achieve this, the pension fund has created a dedicated credit team within the overseas fixed income division, the NPS spokeswoman said.

NPS also aims to expand its overseas alternatives assets to grow to 10% of its AUM, she said. The pension fund has already taken steps to attain this goal by forming joint ventures with overseas asset owners or managers to invest in international real estate. It also formed a landmark alliance with Dutch pension fund manager APG to invest in large real asset deals late last year.

While the fund can form alliances to invest into alternatives, equity and fixed income investments require different expertise, networks and external advisers. The restructure will help NPS to better specialise in these respective asset classes, a senior executive at a Korea-based institutional investor told AsianInvestor.

NPS will have needed to get approval from the government for the restructuring, because it controls budgeting and headcount plan, so it is likely that these plans have been some time in the offing, he added.

The Global Alternatives Week: Korea 2021 will be held next week. For more information, please contact Iain Bell or Josh Jeon

This story has been updated to clarify that the 38 new staff members will be added to several departments of the National Pension Service, and not solely overseas public markets.