Korea’s National Pension Service has unveiled plans for an unprecedented increase in its portfolio management team as it moves to raise exposure to global equities and alternative investments.
The fund, which has seen its AUM increase to $425 billion as at June this year, has pledged to hire 65 investment managers by July 2015. That would take its in-house portfolio management team to 221, a 42% increase on its present tally of 156.
It comes as NPS prepares to relocate its fund management centre from Seoul to North Jolla province in the country’s southwest by 2016 – a government initiative.
Earlier this year AsianInvestor heard former NPS chief investment officer Lee Chan-Woo predict the pension fund would have a headache in recruiting the number of professionals it needed to achieve its ambitious return targets.
Lee had suggested that shifting its fund management centre to North Jolla could create a potential brain drain over the short term because of the move away from the capital, which he suggested could make it difficult to hire senior professionals, as reported.
Nevertheless, it is AsianInvestor’s understanding that the fund management centre in North Jolla would chiefly be used for domestic investment, while NPS would continue to use Seoul as a base for staff investing in global markets and alternatives.
During Lee’s tenure as CIO, which ended in October last year, he oversaw a 52% increase in staff. But the latest move by NPS to ramp up its portfolio management team by almost a half within a year would be an unprecedented expansion.
Last year the fund hired 38 professional managers, which in itself was a new high mark. NPS has already stated plans to increase AUM to $600 billion by 2018 – a 41% increase on current levels – on the back of an aggressive allocation plan.
It has talked about plans to increase its exposure specifically to global equities and alternative investments for the next five years to the end of 2019.
At present it has $48 billion, or 11.3% of total assets, invested in global equities. It is setting out to raise this by $20 billion, or 42%, by 2019. Of its current allocation to the asset class, NPS manages 22% internally.
The fund also has $40 billion invested in alternative assets, including real estate and infrastructure. That in itself is a 4.2% increase from the end of last year.
NPS recently revealed it had set its annual return target at 5.8%, given the country’s forecasted domestic economic growth and inflation rate over the next five years.
NPS has achieved an average annual return of 11.8% from international equity investment over the past five years, compared with a 6.9% return from all their financial asset investments including international equities.
To achieve its 5.8% return objective NPS has calculated it needs to invest at least 35% of overall AUM into equities, not more than 55% into fixed income and 10% into alternatives.
As at the end of last year the fund had 19.7% of AUM in domestic equities, 10.4% in international equities, 56.1% in domestic fixed income, 4.3% in overseas fixed income and 9.5% in alternatives.
It has $82.8 billion invested in domestic equities and $18 billion in domestic fixed income at present.
NPS named Hong Wan-Sun as CIO to replace Lee with effect from November last year, as reported. He is due to serve a two-year term, with a possible one-year extension.