National Pension Service to expand alternative investments

National Pension Service headquarters building in Jeonju, North Jeolla Province / Yonhap

By Lee Kyung-min

The National Pension Service (NPS), the world's third-largest pension fund with over 900 trillion won ($769 billion) in assets under management, is seeking to diversify its investment channels with private equity funds (PEFs) and alternative investment targets.

The NPS is seeking to increase the proportion of its alternative investments to up to 15 percent of its total operating assets by 2024, up from 10.4 percent this year, according to sources familiar with the issue, Friday.

Its gradual shift towards new asset classes reflects growing demands for joint equity financing, deal sourcing and due diligence from overseas investors, with whom the pension fund's financing and operating capability can be enhanced.

The NPS plans to establish a division which will explore the best possible opportunities beyond the fund's conventional investment metrics. The new unit will be launched upon the passage of the revised presidential ordinances governing the pension fund.

The new team will be assigned to promote the development of new management strategies and expansion of fund operations, while also supporting the existing three teams whose work includes overseas investor relations with those in Asia, the U.S. and Europe. Also among the top priorities are orchestrating equity financing, private debt and secondary strategies.

The pension fund in March acquired a partial stake in BC Partners, a British international investment firm, for 1 trillion won. BC Partners has $40 billion in assets under management across private equities, credit and real estate in Europe and North America. This investment was the first time the National Pension Service has bought equity in a private equity fund.

Of the assets of Korea's pension fund, over a third, or 37.6 percent, are held in local bonds (341 trillion won). About a quarter, or 25.8 percent are held in overseas shares (223.8 trillion won), whereas domestic shares account for 20.3 percent (184.3 trillion won).

Alternative investment amounted to 94.6 trillion won, or 10.4 percent of the total, followed by overseas bonds amounting to 53 trillion won, or 5.8 percent. Among alternative investments, overseas real estate accounted for 27 trillion won and overseas infrastructure for 18 trillion won, the NPS said.