Bolder Investment Strategy

National Pension Service will also invest in new foreign firms with good growth potential to expand overseas investments

The National Pension Service (NPS) posted annual gains of 10.8 percent or 26.226 trillion won for 2009, a surprising figure considering the difficult economic conditions sweeping the country and the world, the Ministry for Health, Welfare and Family Affairs said recently.
The ministry said the National Pension Service Fund Operation Committee approved the annual report of the fund for 2009, showing the net profit growth at that level in its meeting on Feb. 25 at the Plaza Hotel in downtown Seoul.
The NPS report showed that the operable fund totaled 277.642 trillion won, an increase of 42.299 trillion won from 2008 or 17.9 percent. The fund was invested in domestic bonds (73.9 percent), domestic stocks (13.1 percent), overseas stocks (4.8 percent), replacement investments (4.5 percent) and overseas bonds (3.8 percent) with profits amounting to 26.226 trillion won from the investments.
The biggest profits came from investments in domestic stocks whose prices rose sharply from their purchase prices during last year with profits rising to 15.537 trillion won, a 58.4 percent return, the report said, erasing the deficit of 427 billion won incurred from investments in domestic stocks in 2008 or -0.21 percent.
The annual profit figure from the stock market is double the average for the three years from 2007 to 2009, standing at 5.8 percent, and the first double-digit figure since 2001, which recorded 11.41 percent.
Industry sources said the NPS’s performance was a result of the quick recovery of the economy from its slump ahead of any other country in the world.
NPS officials said they sold part of the low-priced stocks early and bought more bonds, which are much more stable, and made replacement investments to help realize such large profits from stock investments last year. The NPS fund would now likely rank the fourth largest such fund in the world, surpassing CALPERS of the United States, and preceded by Japan’s GPI, Norway’s GPF and the Netherland’s ABP.
During the same period last year, NPS led all others in annual profits with a 9.31 percent rate, compared to 4.17 percent, 4.5 percent for ABP of the Netherlands, and 8.1 percent for CALPERS, making itself truly a big hand in global investment fund operations.
They said replacement investments in real estate, infrastructure and organizational structuring take a long time to recover and profit rates in the early stages are low in general.
The NPS took over a 12 percent stake in Gatwick airport, stressing that investments in Britain will play a significant role in quadrupling its international exposure.
The NPS, which is aiming to expand its overall portfolio from $240 billion to $400 billion by 2014, came to the attention of Britain’s financial community last year when it bought the headquarters of HSBC in Canary Wharf for 773m ($1.2 billion) in cash. Gatwick airport was sold late last year to Global Infrastructure Partners, an infrastructure fund backed by Credit Suisse and General Electric, for 1.51 billion. NPS President Jeon Gwang-woo said that taking a 12 percent equity stake in the airport represented an investment of a little less than 100 million.
The Gatwick deal was financed with bank debt accounting for 45 percent of the purchase price.
“We are part of a consortium,” Jeon said. “In our investment strategy, for the time being and foreseeable future, we will look for possibilities to join forces with big international players. This is an opportunity for big financial players.”
Jeon said NPS will increase its overseas investments to 20 percent or 63 trillion won, double the current investment rate that goes overseas, by 2014. He also said NPS investments will also go to foreign companies with great potential, not depending on changes in indices. He also pointed out that raw materials and renewable energy would also get increased NPS investment in the days ahead. nw

President Jeon Gwang-woo of the National Pension Service.