The National Pension Service (NPS) has decided to increase its investments in overseas securities by 15 trillion won next year, the Ministry of Health and Welfare said May 22.
The National Pension Fund Management Committee will meet on June 1 to review various matters including the plan for asset distribution for 2016-2020 and a proposal to reform fund management directions, among others, with Health and Welfare Minister Moon Hyung-pyo presiding over the committee.
The investment fund for overseas securities will be increased by 3 percent by weight while the asset distribution target for the end of 2020 will also be increased from 3 to 5 percent by weight at the committee's meeting.
The NPS will have 85 trillion won to invest overseas next year, with 15 trillion won increased in the fund allocated for investment in overseas securities.
At the same time, the funds allocated for investments in domestic bonds will be cut in the days ahead. As of the end of February this year, the fund allocated for investments in overseas stocks amounted to 61 trillion won, sharing 12.6 percent of the NPS's total assets of 482 trillion won with the funds allocated for domestic bonds, taking up 54.7 percent of the total funds, the second largest in the world behind Japan fs GPIF.
The rise in funds allocated for overseas investment has been the result of experts calling for increase in the funds for overseas investment in the asset distribution of the NPS.
Researchers at the Korea Development Institute also called for increases in the overseas investment funds of the NPS to prevent negative impacts on domestic capital market from a large recent increase in the NPS assets. Both the Canadian pension fund, CPPIB, and SPI of Sweden also recorded large profits from their investments in overseas securities with the two retirement funds overseas investments taking up more than 40 percent of their total funds. The NPS was only able to post 5.2 percent in profit from its overseas investments last year.
Some financial experts see the NPS's move to increase its overseas investments as part of a government strategy to prevent the appreciation of the Korean won's value, which would hurt Korea fs exports by cutting its U.S. dollar holdings.
The committee will officially change NPS investment directions with the addition of the hedge fund in the list of overseas investment areas for the NPS fund, which was officially approved by the committee in February.
In the days ahead, the NPS plans to further diversify its overseas investment areas to include — besides hedge funds — overseas REITS, raw material funds, and investments in firms specializing in investments in raw materials.
A proposal to increase dividends by business firms, which the NPS has been trying to do by changing its regulations, will also be taken up by the committee.
The regulations are likely to be changed so that the NPS can take actions on listed firms with NPS investments as stakeholders that declared dividends considered to be too low compared with their net profits.
The NPS invests only after due consideration to risk of fund so as to generate a better return in the long term. Hence the NPS takes systematic and coordinated steps to measure and manage risk, while thoroughly recognizing potential risks incurred by all activities related to the fund management.
More specifically, the NPS adopts an enterprise-wide risk management approach, including a rigorous review processes by the risk management committee, which is chaired by the CEO and composed of its majority by outside members such as financial and legal experts.
No doubt, multi-layered audits and performance assessment procedures, in terms of risk management framework, boost the validation and credibility of NPS activities.
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