Korea’s $400B Pension Looks to Hire to Foreign Investment Staff

(February 10, 2013) – South Korea’s National Pension Service (NPS) has opened investment positions to foreign applicants for the first time, CEO Choi Kwang told Bloomberg in an interview.

The organization plans to double its in-house investment team and expand holdings of international assets, according to Choi.

“NPS is a big whale in a small pond,” he said. “We have to go out and find promising countries… At the moment, to be really frank, we do not have enough staff to do that job.”

In addition to its Seoul headquarters, NPS operates satellite investment offices in New York and London. The former has a staff of five, which Choi said could increase to as many 40. In London, NPS is looking to add up to 26 people to the current four-member team.

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International assets represented 18.2% of the $395 billion portfolio at June 2013, according to NPS’ annual report. In 2012, its foreign equities and a fixed-income holdings both outperformed their domestic counterparts.

Choi said he intends 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.”

These strategic relationships have been forged with high-profile asset owners: Dutch pension system APG, the Canada Pension Plan Investment Board, and China’s national social security fund.

For asset management partners, NPS has again looked beyond its shores. It has forged strategic relationships with Morgan Stanley (fixed income), AXA (infrastructure), and Investec (equities), among others.

NPS is the primary social security system in South Korea, covering more than 23 million people as of last June.

A survey found asset owners seek to restructure their fixed-income portfolios, increase exposures to real assets, and continue to explore alternative investment options.

(February 10, 2014) — Concerned by rising interest rates in 2014, investors expect to restructure their fixed income portfolios, even foreseeing an inflow from equity commitments in the next three years, according to research.

A joint survey conducted by consulting firm CaseyQuirk and eVestment found that of more than 135 institutional investors with $1.6 trillion in total assets under management (AUM), 53% cited the end of tapering and rising rates as the key issue of 2014.

Drivers of asset owners’ behaviors were divergent, however. Corporate pensions said they seek to continue de-risking and immunize liabilities, boosted by high funding ratios. Public pensions reported focusing on raising allocations to alternatives to improve funding. Non-profit funds said they plan to continue investing heavily in alternatives to meet target returns.

Such various needs have pointed to differing changes in investment policies, the report found.

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Most pensions reported seeking to realign their fixed-income portfolios during the next three years; US investors were looking to next-generation debt strategies to generate income; and European asset owners planned to increase their exposure to alternatives and non-traditional asset classes.

Sixty-five surveyed investment consultants representing $3.7 trillion in assets under advisory said they expect a spike in appetite for real assets.

“Institutional investors of all types seek long-dated, unlisted investments that also generate strong recurrent cash flow, well-designed for liability immunization, and inflation protection,” the report said.

Along with big changes in domestic and global fixed income allocations, global equities will also experience increased interest, benefiting from the trend away from home-based portfolios, according to the consultants.

Long term, asset owners expected growing allocations to fixed income and alternatives, “mostly at the expense of benchmark-tracking domestic equities,” the report found. Passive investments were expected to remain the same in allocations during the next three years.

The survey found interest in alternatives, of various terms and types, continuing to grow among investors. Infrastructure and commodities were expected to perform well through 2016. Smaller US pensions and non-profits, on the other hand, are said to invest heavily in hedge funds and private equity.

These prospective changes in behaviors, concerns, and demand characteristics of asset owners would push asset managers to become more flexible and creative with their products and management, the report found.

“Fund managers will have to become adept at meeting the needs of asset owners seeking specific solutions, elevate their fixed-income game, and shift more rapidly to offering a globalized investment framework that incorporates both traditional and alternative skills,” said Jeffrey Levi, director at CaseyQuirk.

Managers would have to switch to outcome-oriented investing—moving away from benchmark focused allocations—create a multi-sector strategy for fixed income; help investors achieve appropriate de-risking and liability-driven investing strategies; search for more non-correlated real asset investments; and increasingly globalize portfolios.

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