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Putting Jeonju on the GP’s map

The world’s third largest pension fund maybe going through turmoil, but its alternatives programme still looks inviting to fundraisers.

A 125-mile, two-hour train ride south of Seoul, Jeonju is a UNESCO City of Gastronomy famous for its bibimbap (mixed rice with vegetables) and historic villages. As of February this year, it is also the home of the world’s third largest pension, Korea’s National Pension Service.

The country is an increasingly important destination for managers looking to raise private capital, as we noted this month, and its pensions are more than happy to welcome them – three of the biggest (the Government Employees Pension Service, Public Officials Benefit Association and Korea Teachers Pension Fund) expect their allocations to alternatives to rise to 40 percent of their portfolios by 2020.

And they are not alone. The 558 trillion won ($496 billion; €430 billion) NPS said in March it is planning to increase its holdings of foreign and alternative investments from 31.3 percent in 2017 to up to 40 percent by 2021, in line with the government’s asset allocation plans.

However, the country’s largest pension is going through a turbulent time, not helped by an ongoing political scandal that led to the raid of its former headquarters in Seoul and the arrest of its chief executive over charges of abuse of power.

The latest bump is the impending departure of its CIO Kang Myoun-Wook, who is leaving the fund before his two-year term ends.

His departure is among a series apparently resulting from the pension’s relocation to Jeonju. According to local reports, more than 20 investment professionals have gone in the run-up to the move, which is part of a government plan to decentralise the country’s economic activities.

“The relocation to Jeonju is the single biggest disruption at NPS and we worry about the quality of the next generation of investment professionals at the pension fund,” a Seoul-based GP tells Private Equity International. “They are taking well qualified, highly experienced professionals and making them sacrifice their personal and professional lives, and that is why we have this dilemma.”

NPS, one of the top 15 sovereign wealth investors by AUM, according to the Sovereign Wealth Center, is an increasingly significant player in both global private equity and wider alternatives. In January, it invested around €210 million in the latest vehicle of pan-European buyout firm BC Partners. In June 2016, it picked four managers – VIG Partners, Skylake Investment, Lindeman Asia Investment and SG Private Equity – to run its domestic private equity portfolio in the scale of 700 billion won. It also backed Blackstone’s long-term private equity vehicle Blackstone Core Equity Partners last year.

The pension is looking to staff up its offices in Singapore, New York and London as it accelerates the pace of its investments. This is perhaps unsurprising as its overseas alternatives portfolio, which accounts for 7.5 percent of total assets, was its best-performing segment in 2016, delivering a 12.3 percent return.

The GP notes that it will be up to the overseas offices to lure executives from other financial institutions. The bigger issue, however, is domestic – attracting and retaining the right talent to Jeonju.

Turmoil aside, NPS remains well worth a visit for the fundraising GP. It is the only pension fund in the country that acts “like a global standard pension fund”, according to Korea watchers. The smaller pensions, laments one manager, constantly scrutinise and even override their GPs’ decisions. NPS, on the other hand, goes “by the book” and does not overstep its boundaries.

General partners had better add Jeonju to their fundraising itinerary.