The Government Employees Pension System (GEPS) has significantly raised the proportion of overseas alternative investment in their portfolio over the past five years by ramping up investment in overseas real estate and private debt funds (PDFs).
GEPS’ overseas alternative investment amounted to 903 billion won ($742 million) as of the end of last year, up 16 percent from a year ago, according to sources on June 3. The figure has increased by 839 percent in five years; GEPS invested only 96.2 billion won in overseas alternative investment as of the end of 2015. The total amount of overseas assets GEPS invested in jumped to 290.7 billion won in 2016 before steadily increasing to 512.5 billion won in 2017 and 775.8 billion won in 2018.
Not just GEPS but other pension funds and mutual aid associations have been trying to expand overseas investment in pursuit of strong returns.
Of the total financial assets (stocks, bonds, and alternative investments) GEPS has now under management, the proportion of alternative investment has also risen. The proportion of alternative investment, including both domestic and overseas, increased to 20.1 percent last year from 13.7 percent in 2015. In particular, of the total alternative investment, the proportion of overseas assets has continued to increase every year from 13.32 percent in 2015 to 50 percent in 2018 and then to 54.63 percent last year.
GEPS is reportedly said to have mostly invested in developed countries such as the U.S. and Europe where investment risks are lower than those of emerging economies. Most of the overseas investment was focused on real estate and PDFs. GEPS seldom invests in foreign companies.
PDFs are funds that lend cash to companies that have liquidity problems or need investment funds. They make money by charging interest. It is considered alternative investment assets can secure relatively stable management performance and return on investment even in the face of rising concerns over increased volatility in the financial market. As PDFs promise more stable performance compared to the stocks, institutional investors like GEPS are investing there every year.
However, starting this year, pension funds such as GEPS will have no choice but to reconsider overseas investment activity as economic uncertainty has grown around the world due to the coronavirus, making it difficult to do overseas due diligence.
Meanwhile, GEPS filled the portfolio of its domestic alternative investment with real estate, ships, private equity funds (PEF) and social overhead capital (SOC). Real estate investment has doubled, while that of the rest has decreased. Private equity funds GEPS has under management were estimated at 293.5 billion won last year, compared to 294.7 billion won in 2015. SOC investments fell to 206.7 billion won from 210.7 billion won over the same period. (Reporting by Hyeran Kim)