NPS’ global investing bolsters alternatives returns

South Korea’s National Pension Service (NPS) has reaped the benefits of diversifying its investing to more in foreign alternatives.

In its annual report the world’s third-largest pension fund revealed that for the Fiscal Year 2016 its rate of return was 5.74 percent for domestic alternatives and 12.34 percent for global alternatives.

However, overall returns were down with alternatives in 2015 generating 12.3 percent compared to a total 9.99 percent in 2016.

The allocation to alternatives has also increased by KRW 9 trillion ($7.98 billion; €7.13 billion) year-on-year to KRW 63.7 trillion for fiscal 2016. The alternatives allocation now sits at 11.4 percent.

International alternative assets now account for 65.5 percent of aggregate alternative assets and the investment in foreign alternatives rose by KRW 9.4 trillion year-on-year to KRW 41.7 trillion. By comparison, the investment in domestic alternatives fell by KRW 400 billion year-on-year to KRW 21.9 trillion.

For real estate NPS carries out two different types of investments – project type and fund type real-estate investments. The project type investment directly selects properties to invest in, such as office buildings, while the fund investment strategy uses domestic and international investment managers to diversify investment by investing style.

For instance, NPS acquired a 27.6 percent interest in One Vanderbilt Avenue, Manhattan for more than $500 million at the start of the year.

However, recently, NPS has adjusted its portfolio focus and expanded its investments in Asia Pacific (Singapore and Australia), Poland, Southern Europe and emerging markets. The investor acquired a prime office complex in Prague from Slovakia’s IAD Investments for approximately €57 million last week.