Taking Risks to Improve Returns
The National Pension Service (NPS) has decided to raise the proportion of its investment in alternatives. It will speed up investment decisions by streamlining processes, commit more of its funds to private asset management companies, and increase direct investment in hedge funds. This is part of its strategy to take risks to improve returns.
The NPS’ fund management committee adopted plans to improve the execution of its alternative investments on May 3. The committee is the highest decision-making body of the NPS funds which amount to 667 trillion won (US$570.08 billion).
The NPS will first strengthen direct investment in hedge funds. The NPS has been investing in overseas hedge funds through a “fund of funds,” which is a re-indirect investment fund. However, it is planning to directly carry out the main processes, such as the establishment of portfolios, management of risks and selection of entrustment firms, in the future. However, the NPS has decided not to invest in Korean hedge funds for now as before. It has expanded the size of fund commitments to private asset management companies.
The NPS has newly allocated 600 billion won (US$512.82 million) and 400 billion won (US$341.88 million), respectively, to “management-oriented private equity funds” that invest mainly in small and medium-sized companies for participation in management, and “special situation and distressed asset (SS&D) funds.” SS&D is a fund which makes a profit by participating in corporate governance reform and restructuring. In addition, the NPS will make a 1 trillion won (US$854.70 million) investment in “corporate partnership” funds which are jointly raised and operated by the NPS and conglomerates.
It will also introduce a “fast track” system in order to boost alternative investment. The NPS is planning to raise the proportion of alternative investments from 12.7 percent this year to 15 percent by 2023.