South Korea’s National Pension Service (NPS) will add private debt and multi-asset funds to its alternatives portfolio and increase the maximum investment in a single non-mainstream fund five-fold to 500 billion won (US$427 million), as the pension fund seeks to boost returns after suffering its worst ever results last year.
The NPS’s investment team will also not be required to seek approval from the management board for investing in alternative mandates of less than $50 million. This is expected to halve the time taken to make investment decisions to four weeks.
The measures were unveiled in a statement on May 3 by the Ministry of Health and Welfare, which is responsible for policies relating to social security, among other things. The statement did not specify when the new measures will become effective, and the ministry did not immediately respond to an email seeking clarification.
According to the ministry, alternative assets, including hedge funds, private equity, real estate, and infrastructure, have “contributed greatly” to the NPS’s overall profitability since they were added to its investment portfolio in 2012, with annual returns ranging between 4.7% and 12.5% until 2017.
“The NPS is facing a tough economic and social condition this year. The fund will focus more on improving returns to enhance its sustainability,” Minister of Health and Welfare Neung-hoo Park says in the statement.
The NPS had said last June that it aims to raise its exposure to alternatives from 11.6% of total assets to 15% by 2023.
The pension fund posted a negative 0.92% return on overall investments last year, the worst since it was set up in 2003. The NPS has not as yet provided the 2018 return for its alternative investments.
According to a Hong Kong-based investment consultant, many top Korean institutional investors, including the NPS, have been pushing ahead to diversify their alternatives portfolio in the current low interest rate environment as their total assets grow.
“However, as the investment choices in the country’s alternatives market is relatively limited, some of the investors are expanding their overseas alternatives allocation,” the consultant tells Asia Asset Management, speaking on condition of anonymity.
The NPS, the world’s third largest pension fund, had approximately 667 trillion won of assets under management as of February 2019.