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 Korea pension fund widens its horizons

By Christian Oliver in Seoul
Published: February 1 2010 22:15

South Korea’s National Pension Service is going global.

Although the NPS is already the world’s fifth- biggest pension fund, only $24bn of its $240bn portfolio is invested abroad.
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South Korea NPS to take stake in Gatwick - Feb-01Tower sold for third time in two years - Nov-14Firm hand for era of airport competition - Feb-01Jun Kwang-woo, the fund’s chairman, is vowing to quadruple the foreign stake to $100bn of a $400bn portfolio by 2014.

The investments are predicted to hit $1,000bn shortly after 2020.

The wide-ranging expansion plans come as Lee Myung-bak, South Korea’s president, is trying to push his country’s sometimes reclusive companies and institutions to play the international role he feels their size should merit.

During South Korea’s presidency of the G20 leading economies this year, promotion of the nation abroad has become a key focus.
Mr Jun said the fund, which is set to take a 12 per cent stake in Britain’s Gatwick airport, would also diversify deeper into equities and property.

Some 77 per cent of the fund is currently in fixed-income holdings, almost all of them Korean.
He said in an interview with the Financial Times: “Ten per cent of the whole fund will be in foreign equity [by 2014], up from something less than 5 per cent now”.

Within South Korea’s own stock market, he added that the NPS would sharply increase equity holdings, promoting marked changes in the often criticised corporate governance practices of the Asia-Pacific region’s fifth-biggest economy.

Mr Jun said 10 per cent ownership was a “sentimental” threshold in Seoul, particularly for stakes in the market’s most important companies, such as Samsung Electronics, Hyundai Motor, steelmaker Posco and telecommunications company KT.

He said: “Beyond that would create an important issue of NPS dominance in Korean corporates. That would suggest we have to look to the outside – foreign investment”.

He said he was still considering how the NPS should best exercise its growing powers to improve corporate governance.

The subject is under close scrutiny, but is likely to involve an independent panel including activists of all economic and political hues whose role will be to ensure that the NPS does not abuse its increasingly dominant position in Seoul’s market.

Another key focus for the fund will be raw materials and energy resources.

The fund will invest both in leading oil companies and directly in commodities, although Mr Jun cautioned that the price volatility in the second asset group would involve “active risk management”.

He identified the two most enticing geographical areas as Canada and Australia, fitting with an overarching strategy of favouring developed nations.

“We will not limit ourselves only to advanced economies but, given the nature of a public pension, security is very important,” he said.

South Korea has launched an aggressive overseas drive in the energy sector.

State power company Korea Electric Power Corp has won a $20bn nuclear reactor deal in the United Arab Emirates, while state oil company Korea National Oil Corp is eyeing $6.5bn of overseas acquisitions.

However, Mr Jun said that he wanted to correct any residual misconceptions among officials that the NPS was a sovereign wealth fund that would necessarily back broader government strategies.

“It is very important to emphasise the priority for the NPS, when it comes to making investments, that the driving force should not be government policy,” he said.

“Our investment should be driven by investment merit and it is good if that is in line with government policy.”

That said, he argued that there was “ample” room for overlap in the interests of government and the NPS, such as renewable power and uranium, in which Mr Jun said the NPS had a preliminary involvement.