South Korea's National Pension Service is moving to build a globe-spanning organization to facilitate an aggressive increase in allocations to offshore assets.
The opening of the pension giant's third offshore investment office, in Singapore, last week “is just the beginning,” said Choi Kwang, chairman and CEO of the fund.
In an interview in Singapore, Mr. Choi pointed to local sovereign wealth heavyweights Temasek Holdings and GIC Private Ltd. — with nine overseas offices each at last count — as examples of the path NPS could take.
The push overseas comes as Jeonju-based NPS seeks higher returns through “increasing allocations to higher risk assets,” maximizing diversification and reducing exposure to local fixed income, said Hong Wan Sun, the fund's chief investment officer.
The fund's June 30 total of 496.2 trillion won ($421.7 billion) represents a 5.6% rise in the past six months. After accounting for more than $2 billion a month in contributions from the salaries of Korean workers nationwide, the investment gain would be far lower.
NPS reported a 5.25% return for the year, below the annualized 6.21% gain since the fund's launch in 1988. At year-end 2014, allocations to domestic fixed income slipped to 55.5% from 56.1%, while overseas equities rose to 12% from 10.4%, and alternatives — domestic and overseas — climbed to 9.9% from 9.4%.
Over the coming five years, the fund's allocations to overseas equities should rise to 20%, from 13% as of June 30, while allocations to overseas alternatives will rise to 9% from 5%, said Mr. Hong, in remarks at the opening ceremony for the Singapore office.
Mr. Choi said NPS' next move into alternative strategies will be to hedge funds, with initial mandates to be awarded to hedge funds-of-funds managers. He declined to say how big a hedge fund allocation would be needed to have a material impact on the fund's investment returns.