NPS to invest W1 tril. in hedge funds
By Choi Kyong-ae
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Choi Kwang NPS chairman
The National Pension Service (NPS) will invest 1 trillion won ($869 million) in overseas hedge funds next year, the first investment of its kind, as it seeks to diversify its portfolio amid falling rates and a flagging economy.
“Instead of directly investing in a hedge fund, we will . . . make an investment in global hedge funds, an NPS spokeswoman said on Sunday.
“Depending on asset operation results, we may consider increasing our investment in hedge funds.”
In the 2016 asset allocation plan posted at the Ministry of Health and Welfare, the state-run pension fund said 1 trillion won of its overall idle funds worth 86.5 trillion won that year would initially be invested in hedge funds.
But analysts warned that the state fund’s investments in hedge funds may feed hedge funds such as Elliott Management, which is still in a battle with Samsung C&T over its takeover by Cheil Industries.
The NPS, which has traditionally preferred bonds and equities as investment tools, has been seeking stable returns through alternative investments in local companies, property and infrastructure projects.
It plans to increase the ratio of global assets to more than 30 percent by 2020, up from 16 percent in 2014, mainly to offset declining margins due to declining rates. Korea’s benchmark interest rate is at an all-time low of 1.5 percent and the Bank of Korea may cut the base rate further in the second half due to downside risks to Asia’s fourth-biggest economy.
The NPS is focusing more on diversifying its portfolio into a wide range of asset categories, both domestic and international. It will help contain risks at the portfolio level in the long term.
The state fund plans to increase investments in overseas equities to 13.1 percent next year from 11.6 percent this year, while cutting investments in domestic bonds to 51.4 percent from 52.9 percent during the same period.
At the end of February, NPS was the world's third-biggest national pension fund with 482 trillion won under management, after Japan's Government Pension Investment Fund and Norway's Government Pension Fund Global.
Under the 2016-2020 asset management program, the NPS plans to increase the ratio of non-Korean stocks to 20 percent by 2020, while reducing that of domestic bonds to 42-44 percent by that year.