Giant Asian Pension to Cut Alts, Refocus on Home Stocks

The US$500 billion South Korean National Pension Service (NPS) has signalled its intention to hold its largest ever allocation of local securities at the expense of alternative investment options.

Next year, the NPS will build up its holding of local stocks to more than KRW 100 trillion (US$93 billion), around a fifth of its entire portfolio, according to a paper submitted the country’s National Assembly, the Korea Times reported.

This shift would move 16 percentage points more of its overall portfolio into equities. An additional KRW 60 billion would be held in foreign stocks while real estate and infrastructure allocations are to be reduced, the newspaper said, in order to build equity exposure.

The fund—which receives significant annual cash inflows—said it would also bring down its new spending on both international and local fixed income products.

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However, last year, CEO Choi Kwang said he intended to boost the fund’s allocation to overseas assets to 30% over the next five years.

“NPS is working to overcome the limitations of the Korean market,” the annual report stated. “NPS is gradually expanding overseas investments in consideration with its role concerning incumbent effects on foreign exchange markets. It is also sharpening its in-house fund management capabilities through strategic alliances with other pension funds and global asset management companies.”

So far this year, the Korea Stock Exchange’s KOSPI Index is down 4.31%. Over a 12-month period, it is down 3.77%.

In a push into the growing outsourcing market, Legal & General Investment Management (LGIM) has launched a “Buyout Aware” service for UK clients.

The service will centre on three elements: a combination of LGIM’s liability-driven investment (LDI) capabilities; tracking buyout prices using the company’s insurance and bulk annuity arms; and a “default transaction cost of zero” L&G buyout, if desired by the client.

The service should allow pension managers to take control of their endgame objectives, which may be either self-sufficiency or buyout, according to the Aaron Meder, head of LGIM’s solutions group.

Meder said the service combined the “building blocks” already present within LGIM’s arsenal.

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Pensions using the service would invest in a bespoke blend of LGIM corporate bond and liability matching funds, with the outsourcing coming into play as the company uses its expertise across LDI, active fixed income, index, and managing insurance assets generally.

Meder said pensions would be invested in a range of four funds—with a combination of real and nominal targets—that each had different durations. Using a combination of these funds would mean investors would end up with a bespoke product for their needs.

The service may leverage LGIM’s position as the largest LDI provider in the UK. The company has a 44% market share, with around 3,000 clients on its books.

It is the first time the company has explicitly labelled a service as an outsourced product. Meder said the decision had been taken due to increased demand for a “holistic matching solutions” from its clients.

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