South Korea's 496.2 trillion won ($421.7 billion) National Pension Service opened its third overseas investment office Thursday in Singapore, amid plans to aggressively ramp up allocations to offshore assets.
Kim Jee-Yeon, formerly NPS' team leader of investment management in Seoul, was named head of the Singapore office. She will be supported by three investment professionals, with plans to gradually add staff, including local hires, said an NPS spokesman in an e-mail.
The move comes four years after the opening of NPS' first overseas office in New York, and three years after its second office in London.
“This is just the beginning,” said Choi Kwang, chairman and CEO of Jeonju-based NPS.
In an interview with Pensions & Investments in Singapore ahead of the office's formal opening, Mr. Choi said while he can't say yet where or when NPS will open its next offices, expanding the organization's footprint will be a key to effectively deploying the fast-growing fund's assets.
With the contribution rate for the fund standing at 9% of workers' salaries, NPS' assets “will be $1 trillion in less than 10 years,” said Mr. Choi. “How can you manage (that) amount of money with only three foreign offices?”
Mr. Choi said the Singapore office will provide opportunities for NPS to forge partnerships with other sophisticated asset owners and money management firms.
Fund executives reiterated the need to look overseas as NPS continues to shift allocations into higher risk assets from local bonds.
In separate remarks at the opening ceremony, Hong Wan Sun, NPS' chief investment officer, said over the coming five years the fund's allocations to overseas equities should rise to 20% from 13%, while allocations to overseas alternatives will rise to 9% from 5%.
In the interview, Mr. Choi said the next move into alternative strategies will be allocations to hedge funds, with initial mandates to be awarded to hedge funds-of-fund managers. He declined to say how big an allocation to hedge funds would need to be made for those investment vehicles to have a material impact on the fund's investment returns.
Mr. Hong said the overall weight of offshore investments over that span should reach 30% by 2020 and, helped by the Singapore office opening, “Asia will be a core growth area” in that drive.
The U.S. and Europe account for 72% of NPS' offshore investments now, against only 17% for Asia, but “Asia is the future,” said Mr. Hong.
An NPS news release about the Singapore office opening said as of June 30, 22.5% of the fund's assets were invested offshore, up from 21.8% at the end of 2014. Meanwhile, the value of the NPS investment portfolio was up 5.6% in the past six months.
Mr. Choi said in the interview that NPS' continued overseas expansion will be key as well to its ongoing efforts to build extensive internal management capabilities.
NPS has hired 40 internal portfolio managers this year, adding to a lineup that came to 162 at the end of 2014, said the spokesman by e-mail. The total should exceed 230 by the end of 2015, he said. Overall staff, meanwhile, is projected to grow to 291 from 212 this year.
Mr. Choi said his ambition in building internal capabilities is no less than to be able to compete with top external money managers.
Analysts cite two big hurdles to NPS making that attempt: money and lifestyle.
The challenge public entities have in offering competitive compensation is a perennial one.
More unusual is the lifestyle issue — resulting from NPS' ongoing relocation to Jeonju, more than two-hour trip from Seoul, part of a government-mandated effort to reverse the overconcentration of the country's economic activities in the capital.
With that move scheduled for later this year, many people “are concerned NPS will lose investment professionals,” noted one Seoul-based analyst, who declined to be named.
Mr. Choi said for an organization poised to become global, increasingly the issue won't be one of choosing between Jeonju and Seoul. “We will recruit very able persons, and then we'll send them — as many as possible — to overseas offices," he said.
Meanwhile, on the topic of paying competitive salaries, Mr. Choi said it's a topic he's been discussing with government officials, and that progress has been made. “By the end of next year, our competition levels will be top levels within Korea,” he said.
It's an issue now, but “I'm confident we can solve the problems,” said Mr. Choi. “It's just a matter of time.”