NPC readies new mandates

The Korean investor will ask fund managers to bid for equity and bond mandates; meanwhile it funds global private equity allocations.
The National Pension Corporation, South KoreaÆs W133 trillion ($138 billion) government pension fund, is preparing to send out requests for proposals to external fund managers for four new mandates.

In addition, the NPC has recently filled two private-equity mandates, marking its first foray into this asset class internationally. It is looking for further opportunities in global private equity.

The NPC has conducted two rounds of international outsourcing to traditional fund managers. In 2003, it made its first foray overseas, mandating Capital International, Fidelity Investments, State Street Global Advisors and Wellington Capital Management for equities and balanced portfolios. These mandates got funded the following year.

Then in 2004 the NPC followed up with six more mandates, including three in global equities to ING Investment Management, Morgan Stanley Investment Management and UBS Global Asset Management, and three in global fixed income to Goldman Sachs Asset Management, Pimco and Western Asset Management.

Last year the NPC put a halt to new traditional mandates, but by the end of 2005 had decided to move into private equity. This was the culmination of a two-year research effort, says Kwag Dae-hwan, head of the investment outsourcing team.

The NPC has been interested in private equity investing in order to diversify its portfolio into long-term assets, which it can do due to its long-term liabilities. About two months ago it invested $50 million each with Blackstone and Kohlberg Kravis Roberts & Co., for global and European funds, respectively.

ôOur strategy is to focus on the top names, especially in the large and mega-buyout arena,ö Kwag says. ôFor these fund mandates, the timing was right, as they were in the process of establishing new funds they were marketing in Asia.ö

The NPC worked with its consultant, Mercer Investment Consulting, to help with the due diligence. But the NPC had to do a lot of its own research, as PE firms cannot be selected via a beauty parade process like traditional fund managers.

Going forward, the NPC wants to fund both traditional mandates as well as new PE opportunities.

On the traditional side, the NPC is now looking at four mandates: active global core equities, active satellite equities (which leaves plenty of room for definition), global core fixed income, and core US fixed income. Its benchmarks are the MSCI World series for equities, with dividends reinvested; and the Lehman global and US dollar aggregate indices for bonds.

Mercer is now working on shortlists for these mandates, which it should present shortly to the NPC, which will then issue RFPs in March, Kwag says. He hopes to have the managers selected by mid-April.

On the PE front, Kwag says the firm is keen to invest another $100 million this year. Once PE players market a new fund, it is then busy investing into various opportunities, so Kwag expects the NPC will have to wait for additional PE firms to come along. He says the firm has heard that several big names from the United States and Europe will be preparing new funds this year.

This follows on the NPCÆs seeding two new domestic PE funds to the tune of W350 billion last year. Those Korean funds are managed by Shinhan Private Equity and by H&Q, but have yet to start investing.
¬ Haymarket Media Limited. All rights reserved.
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