Korea’s NPS lines up Brexit contingency plan
Korea’s National Pension Service (NPS) will embark on a contingency plan as a result of Britain’s vote last week to exit the European Union, but the $430 billion state fund does not view Brexit as an ‘emergency case’.
The NPS Fund Management Center had convened an emergency task force meeting to address uncertainties stemming from the Brexit referendum, the final results of which were announced around 2pm Hong Kong time (7am UK time) last Friday.
An NPS spokesman said the fund, which has an office in London, was aiming to focus on the long-term impact of Brexit rather than the short-term effects. As a result, it does not intend to take any drastic action as a result of the event, despite the major volatility in global markets and NPS’s substantial European and UK exposure.
AsianInvestor could not ascertain more details of the contingency plan or whether the fund had made changes to positions since Friday.
As of end-2015, NPS managed $62 billion of global stocks (about 14% of its AUM), including $14.9 billion in European equities. As of the same time, the fund had $18 billion in global fixed income, of which $7.34 billion was invested in European fixed income. These were the latest figures that NPS provided.
Meanwhile, Korea Investment Corporation, the country’s $91.8 billion sovereign wealth fund, has also paid close attention to the Brexit vote, according to local media.
KIC invests 34% of its assets in global fixed income, a large portion of which is in British bonds. It was not clear whether the fund had cut any positions in equities or bonds since Friday, when the final outcome of the referendum had emerged.
An insider at the fund reportedly said the event could be an opportunity to acquire financial assets at very attractive terms.
As for Brexit's impact on Korean stock markets, domestic equities were not as heavily affected as some Asian share prices by the vote. On June 24, the Kospi dropped 3% from 1,986 to 1,925, but by close yesterday had rebounded to 1,956.
However, the vote clearly added to already widespread uncertainty in global markets. Last week Yang Young-Sig, NPS's head of global private market investment, pointed to “serious issues” – slow growth, low interest rates and depressed oil prices.
Speaking at AsianInvestor’s Korea Institutional Investment Forum last week, he raised concerns about problems stemming from a potential financial crisis in China, and increased risk within the eurozone’s banking industry since the start of this year.
Further, two weeks ago the US Federal Reserve had already indicated further interest rises were unlikely for some time (and the Brexit vote is likely to have reinforced that outlook). This has put a dampener on the global economic recovery trend, said Yang.
To address such uncertainty in respect of financial markets and generate higher returns, especially from a long-term standpoint, he said NPS had been considering rebalancing its existing portfolios.
The fund expects to double its total AUM to $840 billion in seven years, Yang added, and will continue to diversify its strategies and asset classes with the aim of creating stable and profitable portfolios.
Among other changes, it plans raise its allocation to offshore assets to at least 35% by end-2021, from 24.3% currently, as reported. The increase will be driven by almost doubling its overseas equity exposure to 25% from 13.7% of total investments over the five-year period.