Korea’s $242bn pension fund plots 10% alternatives exposure

The $242 billion National Pension Service of Korea is planning to grow its alternative assets allocation to more than 10 percent of total assets in 2014. The allocation represents a meteoric rise on the 3.8 percent target allocation set in 2008.

The National Pension Service of Korea (NPS) has taken a further step to increase its exposure to asset classes such as real estate, private equity and infrastructure by increasing its target alternative assets allocation to more than 10 percent of its total assets.

According to the NPS, which was established to fund the pensions of its aging population, it plans to have the allocation increase realised in 2014. Its alternative assets allocation, which also accounts for corporate restructuring investments, private equity and venture capital, has grown from 1.1 percent of total assets in 2006, to 2.5 percent in 2007 and 3.8 percent in 2008.

NPS currently manages $11.63 billion in alternative assets and has seen its investments produce a slow increase in performance over recent months. From a return of -0.92 percent at the end of 2009, alternatives delivered 2.05 percent as of May this year.

According to state investment agency Invest Korea M&A: “This is a growing trend among Korean pension funds, which are seeking higher returns on investments to meet the increased costs of Korea’s rapidly aging society.”

The pension service, which currently manages $242.6 billion of assets across various markets including domestic and overseas fixed income and equities investments, has been taking steps to increase its exposure to real estate of late by mandating select investment managers to invest on its behalf via either select separate account mandates or on a deal-by-deal basis. Managers appointed include Rockspring Property Investment Managers in London and Carlyle Group in Tokyo.

NPS has been particularly focused on investing in core real estate located in mature markets including London, New York, Tokyo and Sydney where in January it acquired the 44-storey Aurora Place office tower from the Commonwealth Property Investment Trust for approximately $626 million. Other markets to have figured recently include Berlin where NPS acquired the Sony Centre for €570 million from Morgan Stanley Real Estate Investing in May.