The share of alternative investments in the National Pension Service (NPS)’s total assets under management increased by 0.5 percentage points in the first two months of 2020, from 11.4 percent at the end of 2019, reaffirming the pension fund’s intention to increase exposure to the asset class.
NPS, South Korea’s biggest public pension fund, had approximately 737.4 trillion won in assets under management at the end of February, up 797 billion won from the end of 2019. Amid the market turmoil caused by COVID-19, its portfolios of domestic stocks and global stocks shrank by 10 trillion won and 4 trillion won, respectively, during these two months, while its investments in domestic bonds and global bonds increased by 7 trillion won and 4 trillion won, respectively.
It is especially notable that NPS’ investment in alternatives rose by 3.2 trillion won to 87.5 trillion won in the same period, accounting for 11.9 percent of the fund’s total assets. NPS aims to expand exposure to the asset class to 13 percent by 2020, with a target allocation of 3.3 percent in infrastructure, 5.1 percent in real estate, 4.1 percent in private equity and 0.5 percent in hedge funds.
The pension fund is seeking to gradually increase the share of alternatives in search of higher returns in the long run. To that end, NPS has also made several changes to its organization as well as investment strategies during recent months. In the mid-term, it plans to increase its allocation to alternative assets to about 15 percent by 2023.
In particular, it is worth paying attention to the increasing share of foreign alternatives, which is in line with the trends of recent years. At the end of January, NPS’ investments in domestic and foreign alternatives stood at 24.7 trillion won and 60.9 trillion won, respectively, accounting for 3.3 percent and 8.2 percent of total assets. The share of foreign alternative assets in the fund’s assets first surpassed that of domestic alternatives in 2014 and has remained that way since.
NPS’ portfolio of foreign alternatives at the end of January consisted of five asset types: 24.8 trillion won in real-estate, 15.8 trillion won in infrastructure, 19.4 trillion won in private equity, 1.9 trillion won in hedge funds and 79.8 billion won in private debt. Especially, NPS has seen a large jump in investments in real estate and private equity, rising by roughly 1 trillion won and 1.3 trillion won, respectively, compared to the end of November 2019.
The fund invested in private debt as part of its so-called tactical management program, which was passed by NPS’ Investment Committee in May 2019 with an aim to bolster returns. Private debt was the first investment since the program kicked off this year.
Under this program, the fund can invest up to 2.4 percent of its total financial assets in alternative asset types that are not included in the fund’s investment guideline, such as private debt and multi asset funds. (By reporter Han Hee-yeon)