South Korea’s National Pension Service (NPS) has said it will ramp up its activity on alternative assets to improve investment returns after a weak 2018.
“The National Pension Service will concentrate more on enhancing the rate of return so as to increase the sustainability of the fund,” the Ministry of Health and Welfare said in a statement.
The ministry added that even as alternative investments have proven to be superior to traditional assets in terms of profitability and risk, the actual execution has been less than the investment target due to operational and market conditions.
The $570-billion pension system now aims to streamline the decision-making process for making alternative investments, which will see the time required to make investment decisions shortened by half to four weeks. In addition, it also plans to invest in a single hedge fund to build its own portfolio and select entrustment entities to secure better management capability, instead of the re-delegation fund-of-funds approach.
NPS is the world’s third-largest pension fund with 667 trillion won ($570 billion) in assets under management as of February 2019. It expects the value to reach 1.78 quadrillion won by 2041.
The fund’s alternative investments accounted for 11.6 per cent of the total as at the end of February and are projected to be 12.7 per cent in 2019 and 15 per cent by 2023.
NPS recorded an accumulated annualised return of 5.1 per cent since its inception in 1988. Last year’s return hit a negative 0.92 per cent before reviving to 3.9 per cent in the first two months of this year.
The fund has reportedly allocated 600 billion won ($511 million) and 400 billion won ($341 million), respectively, to management-oriented private equity funds and special situation and distressed asset funds. It was also said to set aside 1 trillion won for investments in corporate partnership funds, which it jointly operates with conglomerates.
NPS was recently reported to back SoftBank’s planned $500 million global acceleration fund. Meanwhile, its domestic and global equity portfolio includes biggies such as Samsung, Naver, Hyundai Motor, KB Financial Group, as well as global tech majors Alphabet, Apple, Facebook, Microsoft and Tencent.