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Boon for managers as Korean NPS to outsource billions

The National Pension Service of Korea will outsource 26 trillion Korean won – the equivalent of $23 billion – to external funds managers this year as it moves towards its 2015 strategic asset allocation which will see a dramatic increase in equities and alternatives.

The fund’s long-term strategic asset allocation sees domestic equities shifting to more than 20 per cent, from its current 15.9 per cent allocation, and by 2011 the fund aims to have that allocation sitting at around 18 per cent of the fund, the head of institutional networks and communications at the NPS, Ha-Young Kim, said.

The other major shift will be in the alternative allocation, shifting from the 2010 allocation of 5.5 per cent, to 7.8 per cent at the end of this year, and ultimately to more than 10 per cent by 2014.

International equities will move from 6 to more than 10 per cent.

“The essence of our strategy is diversification, moving from domestic fixed-income to overseas investments and alternatives,” Kim said.

The fund currently employs about 19 equity funds managers, and has 28 alternatives relationships, and ultimately will outsource about 100 trillion Korean won, or about one-third of all assets.

Kim said it is expected the total size of the fund will be 336 trillion won by the end of 2011.

Internally the NPS has eight departments of direct investment management, and last year was on a recruitment drive.

The external funds management team, which manages all relationships with external managers and is responsible for manager selection, sits within the investment strategy department.

Strategic asset allocation

asset class 2010 2011 2015
domestic fixed income 68.1% 63.5% <60%
overseas fixed income 4.2 4.1 <10
domestic equities 15.9 18 >20
overseas equities 6 6.6 >10
alternatives 5.5 7.8 >10


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