SOUTH KOREA - The National Pension Service, the world's fifth largest pension fund with US$200bn in assets, has said it is in talks with a couple of foreign banks over stake purchases and will also buy as much as 9trn Korean Won (KRW) ($8.9bn) of South Korean stocks this year, amid the pressure to boost returns by expanding investments overseas and diversifying its current asset allocation from the existing overweight to bonds.
He added that NPS, whose assets are growing at the fastest rate among the world's major pension funds, wanted to make an investment similar to Korea Investment Corp's $2bn purchase of preferred shares in Merrill Lynch earlier this year, illustrating it would invest in global investment banks when good opportunities came along, either directly or through private equity funds.
NPS has already allocated some of its assets to global private equity funds, such as Kohlberg Kravis Roberts and TPG.
Other than alternative investments, NPS will increase holdings of domestic and overseas stocks to about 40% of total assets by the end of 2012, while cutting the weighting of bonds to 50%. Bonds accounted for 78.9% of the fund's KRW230trn ($226.5bn) in assets as of the end of June.
The fund will invest between KRW4trn and KRW9trn into South Korea's $867.7bn of equities in the second half of 2008, depending on market conditions, Park said.
According to Park, the returns of the NPS are much poorer than the major pension funds in other countries. The difference stems from asset allocation.
Park indicated the fund wanted to raise yields by 2% by early 2010. NPS earned an average 6.1% in returns in the past three years, half that of the California Public Employees' Retirement System (CalPERS), the biggest US public pension fund.
Aside from overseas investments, the fund is also eyeing domestic assets.
NPS last month expressed interest in buying state-owned South Korean banks, such as Woori Finance Holdings Co. or Korea Development Bank, which are projected to account for 10% of the fund's assets by the end of 2012, from 2.5% in 2007. South Korea plans to sell part of its 73% stake in Woori this year, while Korea Development Bank's initial public offering is planned for 2009.
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