Chairman Jun Kwang-woo of the National Pension Service (NPS) said NPS might invest in Korean-type hedge funds to invigorate the hedge fund market in Korea at an international forum on Korea-type hedge funds and new challenge and opportunities held at the Westin-Chosun Hotel on June 14.

The NPS CEO said he will consider the matter as part of a strategy to expand sources of profits for NPS funds, which have grown to 348 trillion won, the fourth largest investment fund in the world. He said NPS has started a project to size up the composition of its portfolio and boost the capacity of all the work to be done before deciding to invest in hedge funds.

NPS has become the first retirement fund in Korea to express its intention to invest in hedge funds. Jun said NPS needs to further diversify its investment portfolio to raise its profit level, currently limited to private equity funds, social overhead capital, and real estate. 

Hedge funds performed well in the past 10 years, which attracted NPS’s attention as a potential investment, Jun said.

Vice Chairman Choo Kyung-ho of the Financial Services Commission said the FSC will ease various conditions to make it easier for investors to invest in Korean-type hedge funds.

The chairman, in an interview with local media, recalled that he worked on changing the past paradigm of investing in which 80 percent of a fund was put in bonds, a strategy he said was too conservative, and expanded the investment area to include stocks and replacement investments. With interest rates falling year after year, NPS had to seek other ways to boost its profits from investments with the fear that NPS funds might dry up. He said NPS investments in stocks were raised to 23 percent of its available investment funds from 14 percent last year, while working on replacement investments in real estate both at home and abroad. This strategy enabled NPS to get a 10 percent return on its investment for two years in a row in 2009 and 2010 amounting to 64 trillion won compared to 148 trillion won made over the past 24 years.

The reason for NPS’s excellent profit record despite the 11 percent fall in the KOSPI index is traced to the investment in replacement investments overseas, which NPS looked for to secure more profits as the domestic investment market was limited for its 365 trillion won in investable funds. Jun said it is important to build a reputation as a global investor for NPS not to lose a profitable investment market overseas in which to make more aggressive investments.

“You’ve got to have a big purse and share eyes to look for where to invest in order to keep growing in a tough investment environment,” is what Jun used to tell his assistants and staff at NPS.

Jun worked hard and got results from the hard work, especially from overseas investments, putting NPS in the position of a leading global retirement fund investor in the past three years since he took over the helm of NPS.

Among the eye-catching investments overseas is 174 billion won, or about $150 million, invested in London’s Gatwick Airport for a 12 percent stake, along with joint investment partners CALPERS and ADIA. The investment has earned 76 billion won annually and the profit is projected to soar due to the London Olympics this summer.

In November 2011, NPS made a joint investment in a toll highway Eastlink near Melbourne, Australia, with CIC, a state wealth fund in China, and APC, a retirement pension fund in the Netherlands. NPS also invested in an oil pipeline in the United States. Chairman Jun is always in charge of the final decisions on overseas investment activities at NPS, employing his strong global investment network to cross-check the appropriateness of overseas investments. The NPS has increased the share of funds invested in replacement investments from 7.8 percent to 9.2 percent of total funds and has boosted the weight of overseas stocks from 5.7 percent to 8.1 percent. #