South Korea’s 469.8 trillion won ($434.1 billion) National Pension Service, Seoul, continued to diversify into overseas assets in 2014, helping to offset the local stock market’s decline, its latest annual report shows.
The report showed the fund returning 5.25% for the year, short of the medium-term annualized target return of 6.1% set by the National Pension Service’s fund management committee for the five years through 2018, and below the annualized 6.21% gain since the pension fund’s launch in 1988.
The pension fund ended the year with an asset allocation of 55.5% domestic fixed income, down from 56.1%; 17.9% domestic equity, down from 19.7%; 12% overseas equity, up from 10.4%; 9.9% alternatives, up from 9.4%; and 4.6% overseas fixed income, up from 4.3%.
Overseas alternatives made up more than half of the alternatives asset class this year, up 60 basis points to 5.2% of the overall fund.
The pension fund’s domestic equity portfolio dropped 5.4% on the year as it was overweight large-cap stocks. For the year, the Korea Composite Stock Price index declined 4.8%, while the KOSPI 200 index of the market’s largest companies, tumbled 7.6%.
As of the end of 2014, the national pension fund owned 6.3% of listed Korean stocks.
Echoing prior statements by pension fund executives, the annual report said the fund, which it estimated would reach 847 trillion won by 2020 and peak at 2,561 trillion won in 2043, will increasingly require more allocations to overseas markets.
Overseas investments climbed to a record 102.6 trillion won, or 21.8% of the portfolio, in 2014, up from 19.4% at the end of 2013. The report predicted a rough doubling of those investments to 200 trillion won by the end of 2019.
The pension fund’s alternatives strategies delivered a portfolio-high return of 12.3%; the combined return for overseas investments in real estate, infrastructure and private equity funds outpaced the return for domestic alternatives strategies, 15.3% vs. 9.5%.
Overseas equities, meanwhile, returned 9.5%, while overseas fixed income delivered 8.6%. Domestic fixed income returned 6.8%.
For the latest year, external managers oversaw 35.1% of the pension fund’s assets, or 164.9 trillion won, up from 33.8% of the previous year’s portfolio.
The reported said the pension fund’s continued efforts to allocate more to attractive emerging markets, including China’s domestic A-shares market.
The report listed 44 external managers for global equities, up from 34 from its prior disclosure as of June 30, 2013. The new names on the list included managers focused on China’s A-shares market, such as Beijing-based Cephei Capital Management Co. and Shanghai-based Fullgoal Fund Management Co., as well as a number of U.S. quantitative equity managers, including INTECH, AJO and LSV Asset Management.