Korea’s Geps plans first global equity mandates

Korea’s Government Employees Pension Service (Geps) is seeking to double its exposure to overseas assets by the end of this year, including outsourcing global equity mandates and increasing alternative investments.

The public sector plan, which was implemented in 1960 and has $5 billion in assets under management, has set a target to expand its international exposures to 15% of AUM, from 7.7% at the end of 2014. That, in itself, was an increase from 4.3% in 2013.

For its global equity book, until now Geps has invested passively into such vehicles as exchange-traded funds. However, an internal source tells AsianInvestor that this year it plans to allocate to global equity funds, which it will outsource to external managers. These will include growth, dividend and quant-based funds.

To start its international outsourcing programme it intends to invest up to $200 million with three global equity managers, AsianInvestor understands.

“In 2015 [Geps] will look for competitive, co-mingled global equity products with Sicav and/or Ucits structures,” said the source.

At present, the pension fund’s portfolio is composed mostly of domestic bonds (40.5%), followed by 26.8% dedicated to equities, 20% to cash and 12.8% to alternatives.

That exposure has held back the fund’s returns in what has been a protracted low interest-rate, low-yielding market in Korea. In 2013 Geps reported a 3.5% return, below 4.9% for the National Pension Service and 3.9% for Teachers’ Pension, the nation’s two other public retirement funds. Last year Geps reported an overall return of 3.6%.

But Geps has recognized the need to change. It has increased the number of portfolio managers from three in 2011 to 14 as at the end of last year.

Further, in January last year it established a team dedicated to overseas investments led by Kim Young-Sung, who was previously CIO of Samsung Asset Management’s fixed income division.

And last July Geps named Choi Young-Gwon as chief investment officer, as reported. He has set about making changes, including improving the firm’s domestic equity investment process by introducing a model portfolio system, seeking to maximise synergy between its strategy and equity teams. AsianInvestor recognized Choi in its Korea country awards this year, as reported.

Geps has set a target to reduce its exposure to domestic fixed income to 38% of overall assets, while increasing its proportion of overseas investment to 21% by 2019.

At the end of last year Geps had 5.5% allocated to overseas equities, which it is planning to raise to 8.1% by the end of this year. Over the same period it aims to raise its exposure to global fixed income from 1.8% to 4.5% of its overall portfolio.

Moreover it is striving to raise its alternative investments to 19% of AUM by the end of this year. 

The alternative investment team at Geps, which covers both domestic and overseas alternative investment, embarked on its first overseas alternative allocation in March last year, committing capital to Pomona Capital’s latest secondary private equity fund.

Later last year it took its first step into an overseas real estate project managed by a local manager, acquiring a stake in a prime office building in the centre of Frankfurt’s financial district.

Geps is now exploring other possible overseas alternative mandates, primarily focused on private lending, energy opportunities and fund of hedge funds. It is also looking at deals in real assets ranging from prime office space to retail and logistics centres.

Geps recorded an absolute return of 11.2% in alternative investments last year, achieving 570 basis points of excess return, its best return since 2006.

Geps’s return target for 2015 is 4.6%. On an annualised basis it had achieved 5.4% by the end of the first quarter.