South Korea’s National Pension Service (NPS) has slightly changed the criteria used to select external managers for its alternative portfolio, with a greater emphasis on quality of investment staff.
The NPS, the nation’s biggest public pension fund, recently revealed the criteria for the selection process of its external alternative managers, according to sources close to the matter on April 3. The criteria have been slightly changed compared to two years ago when the pension scheme last made public such information.
This came after the NPS announced late last month its plan to invest 1.95 trillion won in alternative assets in the domestic market this year. It plans to allocate 950 billion won to private equity and venture capital strategies, with the remaining one trillion won earmarked for Corporate Partnership funds.
Private equity and venture capital managers will be selected through competition. By fund strategy, there has been little change in the manager selection criteria for areas of infrastructure and real estate. But those for other alternative investment strategies have seen some notable changes.
The NPS evaluates firms based on their proposals and interview results, with each weighted at 50 percent. Changes have been made to its criteria for evaluating proposals.
The proposal evaluation consists of qualitative and quantitative components. Two years ago, each component had the maximum score of 30 and 70, respectively.
But now up to 40 points are allotted to qualitative part, as a new sub-component to evaluate firms’ investment staff and organizational stability in qualitative terms has been added with the maximum score of 10.
This change has consequently reduced the weight assigned to quantitative part, with the maximum score for each sub-component adjusted lower. At the same time, the NPS added another new sub-component to its quantitative scorecard to consider managers’ ability to provide opportunities for co-investments with the maximum score of 5.
Overall, these changes indicate the pension fund’s intention to put greater focus on quality of investment staff of applying firms and their ability to source investment opportunities.
The criteria for evaluation of interviews remained the same as those two years ago, with the maximum score of 100. They consist of seven sub-components with greater weight assigned to investment strategies and investment team among others.
The pension fund is slated to close applications for its external PE managers on April 29.
(By reporter Han Hee-yeon)