Joint Investment with Private Firms
National Pension Service to establish partnerships with large firms including Samsung, SK, KT and GS
Chairman and CEO Jun Kwang-woo of National Pension Service (NPS) said NPS plans to sign an MOU with large conglomerates in the country including Samsung Trading, KT, SK, and GS groups to establish private equity funds for the first time in its history.
NPS will join the PEFs as a financial investor while business groups will take the role of strategic investors in the projected PEFs with all them sharing investment funds on a one to one basis, NPS said.
NPS will join hands with KT in investing in communication infrastructure construction projects in the Asian region. With Samsung and GS groups, NPS will make investments in recycled energy, plant construction projects, among others. With SK, NPS will look for new business projects in the Middle East and the Latin America.
Each company is expected to invest from 200 billion won to 300 billion won with each PEF formed with more than 1 trillion won in funds.
Chairman Jun said NPS has decided to join hands in making investments overseas to reduce risks and at the same time upgrade its profitability and expand overseas investments with NPS¡¯s investment analysis capability is limited, while those conglomerates are more capable of analyzing investment opportunities abroad. Bonds yield less returns as interest rates have been reduced around the world since the 2008 financial crisis and we have to diversify our investments. The entire world is caught up in competition to find good investment projects and we cannot sit still and watch. We should follow what the private companies are doing overseas with their investments, requiring us to join them through the formation of partnerships and set up a model in the process, the NPS CEO said.
Jun said NPS should have access to the conglomerates capabilities and experiences in overseas operations in the area of investment in particular, and they will have stable investment partner in NPS. Private companies will take charge of various risks related to keeping principle investments in tack, while NPS will share excess profits with those private companies, which will be the guideline for NPS joining partnership with private companies in overseas investments. It will take some time to enter partnership with state-run companies in this fashion and he expects NPS will have visible results in its plan to enter partnership with private companies.
NPS has been widely known around the world for its growing scale of available investment funds as its overseas investment has been rising fast. It ranks the fourth in size after those in Japan, Norway and the Netherlands and its one of the youngest such funds unlike other similar funds.
NPS plans to increase its investments in stocks to 24.6 percent of its available funds from the current 21.7 percent and replacement investment to 7.8 percent from 6.4 percent, while domestic bond holdings will be cut to 67.6 percent from 71.9 percent this year. Diversifying investment is meant to not only to hike profits, but also to reduce risks to safeguard profits. Risks are objects to be managed, not avoided. We intend to intensify investments, and avoid offensive investments. We also will increase investments in emerging markets where growth potentials are high, spread the industries for our investments, Jun said.
There are criticisms that shareholders try too hard to intervene in companies¡¯ management during annual shareholders meetings, although NPS should expand its demands to the companies in which it holds shares as it purchases more shares. If things are changed suddenly, it brings many problems and NPS will seek balance as its stock holdings will rise to around 5 percent of the total shares traded on the exchange.
At the end of last year, the subscribers for NPS totaled 19.23 million, the highest since the NPS was launched. There still are the dead corners where people cannot become members of NPS due to their weak income. Those members who need lump sum of money due to problems in their cash flows momentarily, NPS is considering measures to issuing emergency loans to those members at annual interest rates on government bonds. nw
Chairman and CEO Jun Kwang-woo of National Pension Service (NPS)