Korea's NPS boosts alternatives allocation to 11.4%
The National Pension Service of Korea (NPS) continued its steady growth in alternatives exposure, with its allocation increasing from 10.7% to 11.4% over the course of 2016 – which equates to additional capital of KRW9 trillion ($7.9 billion) – as total assets hit KRW558.3 trillion.
The pension fund’s global alternatives investments first overtook the domestic portion in 2014 and it now accounts for two thirds of overall exposure. Investment in offshore funds increased KRW9.4 trillion to KRW41.7 trillion in 2016, while the domestic pool declined by KRW400 billion to KRW21.9 trillion.
Alternatives was the second-best performer in NPS’ overall portfolio after global equities in 2016, returning 9.99%. On a three-year and five-year basis, the return is 11.58% and 9.17%, respectively. Global alternatives were the primary performance driver last year with 12.34%. The overall portfolio generated a return of 4.75% in 2016 – net investment income came to KRW24.5 trillion – and 5.07% on a five-year basis.
NPS also noted that it saved KRW30-40 billion in 2016 by negotiating management fee reductions with global GPs to which it made new commitments. These savings will be spread over the course of the respective fund lives.
Within the global alternatives pool, other alternatives – which includes private equity – accounts for KRW11.4 trillion. This compares to KRW9.1 trillion for private equity alone in 2015. Real estate remains the largest alternatives asset class with KRW19 trillion. NPS has a further KRW10.3 trillion in infrastructure and KRW931 billion in hedge funds.
The other alternatives share of the domestic portfolio is KRW7.7 billion, down from KRW8.2 billion in 2015, while KRW5.9 trillion in invested in real estate and KRW8.3 trillion in infrastructure.
NPS started its domestic alternative investment program in 2002 and first went offshore in 2005. The following year its alternative investment committee was set up and the fund's allocation to the asset class was just 1.1%. By 2010, 5.8% of NPS' assets were deployed in alternatives. The fund has previously projected that its total assets will reach KRW847 trillion in 2020 and KRW2,561 trillion in 2043.
NPS has 36 people devoted to covering global alternatives as well as 28 people in its domestic alternatives team. Last month, Jae-Sang Kim was appointed head of global alternative investments. He previously worked at Meritz Asset Management alongside Myun-Wook Kang who became CIO of NPS early last year.
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