Korea’s pension fund aims to emerge as a key player on the global financial market


Korea’s National Pension Service is stepping up its efforts to globalize its operations and organization, while expanding its investment portfolio into foreign markets.

One of the foremost tasks for the NPS was to hire more professionals who could better manage its burgeoning reserves. As part of globalization efforts at an organizational level, the country’s biggest investor on the financial market increased the number of foreign investment experts in the past two years.

In addition, the NPS is conducting exchange programs with foreign fund management companies to help its employees sharpen their expertise for overseas assets and investment trends.

The NPS said that securing information channels is a must to run more efficient foreign investment portfolio. To that end, it is forging a web of networks with foreign fund management firms including strategic partnerships and local offices in key markets. 

Under the globalization initiative of its investment infrastructure, the NPS formed strategic alliances with the World Bank and eight renowned fund management firms such as Russel, Wellington, CVC, GECRE and AXA. Through the international network, the NPS is collecting investment-related data and exploring new investment opportunities including joint projects with foreign partners.

Targeting the increasingly important Chinese market, the NPS also signed a memorandum of understanding with SSF, China’s major institutional investor, for a strategic partnership.

One representative case for the NPS’ globalization efforts was its hosting of the International Pension Conference, which was held in Seoul last July. Some 40 heads of 37 public and private pension agencies worldwide joined the three-day event.

High-profile participants included Takahiro Mitani, president of Japan’s GPIF, the world’s largest pension agency and David Denison, CEO of Canada Pension Plan Investment Board.

To increase the portion of offshore assets, the NPS also opened its New York office in June last year, a beachhead on the global financial hub to gather the latest trends, forge networks with foreign experts and explore new investment opportunities.

By this July the NPS plans to open another office in London, a strategic region which accounts for 30 percent of the fund’s foreign investments, while setting up offices in strategically important Asian countries.

On the strength of the expanded bases in foreign markets, the NPS is boosting the holdings of foreign social infrastructure and real estate assets. In the wake of the global financial crisis in 2008, the NPS bought promising non-financial assets outside of Korea at lower prices, which generated solid returns. Its timely move in strategic fields also drew keen attention and it is now regarded as a “competent player” on the global financial market.

One of the representative success cases is Britain’s Gatwick Airport. The NPS invested in the airport in partnership with U.S. pension fund, CalPERS. The NPS already recouped 44 percent of its investment principle from the particular investment project, and expects additional profit as the airport’s operating income continues to improve.

The NPS also invested in U.S.-based Colonial Pipeline, which is deemed a highly attractive asset among foreign investors. Despite the volatile economic cycles on the global market, the oil product pipeline company offers a steady stream of dividend payouts and the NPS expects a sizable profit in the longer term.

The NPS is also paying attention to landmark buildings outside of Korea. For instance, its real estate portfolio includes such landmarks as London’s HSBC Tower, Sydney’s Aurora Place and Berlin’s Sony Center. These high-profile assets provide both a steady channel of rental income and a steadily increasing asset value.

For long-term investment income, the NPS is also working with Korean companies to set up matching funds. For example, Mirae Asset Private Equity Fund and Fila Korea, the Korean sport footwear and apparel maker, acquired Acushnet Company, the world’s largest golf equipment company by revenue, in July last year, and the NPS joined the deal as a financial investor. As Acushnet’s operating profit recovers, the NPS said its investment for the golf equipment maker is positive.

Establishing joint funds with Korean companies to secure promising offshore assets is also important. The NPS said the combination of its ample liquidity and Korean conglomerates’ expertise in foreign investment is producing tangible synergistic effects. Currently, the NPS signed investment deals with 12 Korean firms including Dongwon Group and GS Engineering & Construction, valued at about 4 trillion won. The funds are worth about 8 trillion won in total.

Based on its expertise on foreign markets, the NPS plans to diversify into emerging markets, as well. The mainland market of China, for instance, is expected to post a rapid growth in the following years. The NPS received the QFII, a license to invest in China’s local stock market, in January this year. Recently, it also secured investment quota from the Chinese authorities. The NPS plans to start investing directly in the Chinese stock market within this year, and then expand its investment into other Asian markets.

The NPS said it will boost the proportion of foreign investment in its entire portfolio to 20 percent by 2016, up from the current 13 percent, as part of its efforts to put itself on the global financial map as a key player.


By Yang Sung-jin (insight@heraldcorp.com)