South Korea’s National Pension Service (NPS), which oversees $430 billion in assets, has named four private equity (PE) firms to manage 700 billion won ($607 million) of its funds.
In an announcement on June 30, 2016, NPS disclosed that VIG Partners, Skylake Investment, Lindeman Asia Investment and SG Private Equity would run the its private equity fund (PEF) with a corpus of 700 billion won ($607 million).
VG Partners and Skylake Investment will manage investment in large-cap companies with 250 billion won of entrusted funds for each, while Lindeman Asia and SG Private Equity will be allocated 100 billion won each to invest in mid-sized companies.
Additionally, NPS will soon choose eight PE firms to operate venture funds which will invest in small, early-stage emerging firms.
This development comes in the wake of the NPS being requested to increase its exposure to South Korea’s KOSDAQ market, given that traditionally its stock investment guidelines are tilted towards blue chips listed on the main KOSPI bourse.
Kang Myun-wook, the new chief investment officer of the NPS, recently made a vow to increase the funds exposure to the stocks of listed small and medium enterprises (SMEs) upon taking office.
The moves come as pension funds in wealthy states grapple with problems such as underfunding, even as ageing demographies and improved healthcare have led to many retirees needing to stretch their income further. This is coupled with many countries increasing their retirement ages.
With many pension funds facing fundamental challenges to their established model, as well as grappling with investment and regulatory changes arising from the 2007/2008 global financial crisis, this move by the NPS is meant to diversity its exposure.
Earlier this year, DEALSTREETASIA reported that South Korea’s Public Officials Benefit Association (POBA), a pension fund for government officials, allotted $200 million to PE vehicles this fiscal, a 100 per cent jump, from its allocation in 2015.
In 2015, the same fund committed $30 million to a fund run by the Blackstone Group, in addition to allotting $40 million to Oaktree Capital Management; and another $30 million to Lexington Partners. This was the first instance of POBA investing in global PE firms since the 2007/2008 global financial crisis.