The National Pension Service (NPS) is seeking to reclassify its alternative investment divisions, currently divided into domestic and global assets, into three asset classes – private equity, real estate and infrastructure – in a move which domestic fund houses fear may undercut their competitiveness over foreign rivals.
In the first reorganization of the NPS’ fund management department in 10 years, the pension scheme plans to create two deputy chief investment officer roles. Deputy CIOs will oversee individual investment divisions as heads of newly-created public and private sectors, respectively and serve as a bridge between CIO Myoun-Wook Kang and the heads of those investment divisions. (for details, see the table below)
“We are seeking to reorganize the investment management department on the occasion of moving it to Jeonju, North Jeolla Province, next February,” a senior NPS official told the Korea Economic Daily. “We have submitted the reorganization draft we had prepared to the welfare ministry, and now we are in discussion with them.” The welfare ministry oversees the NPS which manages $470 billion in assets.
Among the seven investment divisions under the NPS’ Investment Management (NPSIM) department, it is only the two alternative investment divisions and the global public market division that would be affected by the planned internal reorganization: the global public market division will splinter into global equities and global fixed-income divisions.
Deputy CIOs are expected to coordinate investments for similar asset types and facilitate communications between individual investment division heads. They will also free up CIO Kang to focus on drawing a big picture and asset allocations.
The reorganization plan is seen as an effort to enhance investment expertise at the world’s third-largest pension fund. However, it could lead to a cut in the allocation of the NPS assets to domestic alternative asset managers, with South Korean investors increasingly looking to offshore assets in search of higher yields.
“If one division reviews both domestic and foreign investments together, they may end up with global management houses which have a wide array of investment portfolios and knowhows built for a long period of time,” said a South Korean PEF head.
Under the reorganization draft, private equity, real estate and infrastructure divisions will come under the private sector head, while the public sector head leads five divisions of equities, fixed income, global equities, global fixed income, and investment operation.
BRACING FOR $860 BN IN ASSETS
NPS’ assets under management have almost trebled to 550 trillion won ($471 billion) this year from 190 trillion won at end-2006. Its AUM is projected to nearly double to 1,000 trillion won ($860 billion) by 2022. In the past decade, in-house fund managers at the NPS have nearly quadrupled to 220 from 61, and global portfolios make up more than 20% of the total assets.
“The fund management organization formed at the time when assets were 100 trillion won is no more fit to serve the fund with 1,000 trillion won in assets,” NPS quoted its Chairman Hyung Pyo Moon as saying.
The separation of alternative investments into domestic and global divisions also created a grey zone for which responsibility was unclear, and drew a rigid boundary between onshore and offshore investments.
The recent example was about the $900 million aircraft fund. The NPS’ domestic alternative investment division had reviewed a possible investment in the fund which would buy a 20 aircraft portfolio from GE Capital Aviation Service, because the fund was being prepared by a domestic securities firm. However, NPS backed out of the potential investment after a reshuffling of its senior managers in July, in which its domestic alternative division head moved to the global alternative team.
Former NPS chairman Kwang-woo Jun said that the planned reorganization would help improve stability and management capabilities at the pension fund, and present a vision for its future to in-house management staff who are nervous about the upcoming relocation of their office to Jeonju, a three-hour drive south of Seoul.
Last week, the NPS posted job openings for around 30 experienced fund managers in its third recruitment for the Investment Management department in 2016. The job posting came less than three months after it advertised about 30 positions opened for fund managers in late July. It did not disclose the results of the second hiring process, for which the competition rate was the lowest in the department’s history.
By Dongwook Jwa and Chang Jae Yoo
<Edited by Yeonhee Kim>