Pension fund chief sees resources, real estate as hedge on soaring prices
By Cho Jin-seo
With almost all commodity prices going up, the rent and capital gains from overseas real estate propertie are also increasing, proving that Jun Kwang-woo was right to divert some of the nationa pension fund from conservative bonds to real estate and stocks.
“The timing was good. When we were veering into a new direction, we happened to have an accommodating market condition,” he said last Tuesday in his office in southern Seoul. “This has reduced public resistance to our strategy of going for alternative classes.”
One may question whether he predicted inflation would soar or was he simply lucky last year. But one thing is sure that the NPS will continue in its current direction. Of the $10 billion or so earmarked for overseas investment this year, some $4 billion is ready to be spent on alternative asset classes.
Jun started this initiative last year, after becoming the chairman of the world’s fourth largest pension fund in 2009. It drew attention from the foreign financial media that a pension fund from nowhere suddenly bought high-profile properties such as HSBC headquarters in Canary Warf, London, and a share of Gatwick Airport.
“One important implication (from the rising commodity prices) is that we need to hedge from inflation by diversifying into natural resources and overseas properties,” he said. “Our pension liability is also a good index of inflation by itself. This underscores that we need to expand the scope of inflation hedging.”
He does try to expand the scope of hedging. Earlier this week the NPS announced that it has teamed up with a number of Korean and Japanese firms. Steelmaker POSCO combined with the NPS for a $650 million, 5-percent share in the Companhia Brasileira de Metalurgia e Mineracao, firm that specializes in mining rare metals.
At this time, the NPS has developed core global alternative investment strategy for real estate and infrastructure through investing in the form of “brown field” investment, where it purchases shares of existing corporations that have been proven to make profit.
But from now on, “green field” investment will be also allowed, he says. This means that the NPS will be able to join start-up projects, such as oil exploration and development. One exception to the possible inflation hedging option is agricultural commodities, where the NPS does not have enough experience.
Some observers, not only those at Western financial media but also people in other Asian nations, have raised eyebrows believing that the Korean government seems to be using the NPS’s enormous fund to secure the natural resources Korea needs. Jun strongly denies this claim that profitability and stability are his and his employees’ only concerns. “You know, the NPS stands for ‘neither political nor sexy’,” he jokes.
Expanding its global reach is another mission that Jun is after this year. The first overseas office is to open in New York by June.
Now the whole global investment industry is aware of the NPS - not only for its massive size of over 300 trillion won ($268 billion), but also for its signature deals on core properties in big cities. That will make it easy for the NPS to develop more good deals, Jun hoped.
As for this year’s target, he said the environment is more challenging than last year. “Short-term maximization of profit is not our goal,” he says. But it won’t hurt anyone, either.
