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Pension Funds

South Korea’s NPS eyes boosting alts, staff

Kim Sung Joo, chairman and CEO of South Korea’s National Pension Service.

South Korea's National Pension Service is looking at boosting alternative investments abroad as weak returns domestically and slumping stock markets globally are forcing the world's third-largest retirement fund to seek higher yields.

The pension fund, with $570 billion in assets, also aims to bolster investment portfolio performance by doubling the number of investment managers and raising their pay, NPS Chairman Kim Sung Joo said in an interview with Bloomberg.

With assets projected to exceed $1 trillion within the next few years, a boost in the size of its investment team to at least 500 fund managers is necessary, he said. That would be up from 231 now. The NPS also is planning an organizational change for alternative investments, creating three divisions based on asset classes: infrastructure, private equity and real estate, Mr. Kim said. It is now organized by domestic and overseas investments.

At the moment the yield-improvement plan is just that for Mr. Kim as the pension fund is overseen by the country's health ministry and must appeal to the National Assembly for any major revamp or hiring moves.

"Every night, I dream of hiring talented people," said Mr. Kim, who took the helm of the country's biggest pension a year ago. "I am vigorously discussing with the government and the assembly for the authority to decide the employment of fund managers and set the level of salaries by ourselves."

There is some urgency to Mr. Kim's appeal as the total annual returns for 2018 are expected to be around 2.2%, the worst since 2011, with the benchmark KOSPI slumping about 15% this year.

While total assets are estimated to rise to 1,778 trillion won ($1.57 trillion) by 2041 — the fund will begin to decrease in 2042 and run out of money by 2057, according to the country's health and welfare ministry. Nearly 22 million private sector and self-employed workers contribute to the fund, but that number will begin to decline with a negative birth rate and growing elderly population.

In the midst of falling returns in Korean markets and a rout in global equities this year, the fund is focused on hiring more foreign fund managers for alternative investments, Mr. Kim said. The NPS has about 10.7% of its assets on alternative investments with an aim to increase it to 15% by the end of 2023.

Mr. Kim defended the relocation of NPS headquarters to Jeonju, a midsize city about a three-hour drive from its previous base of Seoul. More than 85 fund managers have left NPS since the relocation, and 47 positions were still to be filled at the end of October.