South Korea: $476 billion pension fund eyes infrastructure, medical sectors

“South Korean stocks have been stuck in a box for the last five years. World stocks might run into headaches as the U.S. raises rates. We must boost our income from alternatives,” Kang said.

Despite the headwinds, Kang says the NPS is on track for its 2016 performance to match last year’s returns of 4.6 percent, outperforming larger peers including Norway’s Government Pension Fund Global, which earned 2.7 percent.

Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, saw a negative 3.8 percent return during its fiscal year that ended in March 2016.

South Korea’s population is the fastest-ageing among the 34 OECD wealthy countries, putting the fund on a path to begin shrinking in 2043 as payouts outpace contributions, increasing pressure for the fund to boost returns.

To do that, NPS has set out to bolster overseas asset allocations from 24.3 percent in 2015 to 35 percent or more by 2021 and increase alternative investments from 10.4 percent in 2015 to 11.9 percent by 2017.

The fund currently has 52.5 percent of its asset invested in local bonds and 18.1 percent in local equities. Some 13.6 percent of the fund is invested in overseas stocks, while 10.4 percent is in alternative investments, including real estate.

Support For Samsung

The NPS is the largest single shareholder in many Korean companies including KOSPI index heavyweight Samsung Electronics, and Kang likened steering the fund to turning an aircraft carrier.

“We are such a huge investor, we cannot just jump into a certain sector, we must follow pre-set allocations,” he said.

“Let’s say we decide to reduce 1 percent (of the fund’s assets) from the local stock market. That’s 5 trillion won. The South Korean stock market would crash.”

Samsung Electronics shares have been roiled by the crisis over its fire-prone Galaxy Note 7 smartphone, which it was forced to recall. The shares are down 7.4 percent from a record high on Oct 7.

Kang did not say whether NPS would support a move by activist investor Elliott Management to split Samsung Electronics into a holding vehicle and an operating firm, saying it would consider what was most favourable for NPS.

NPS, which supports the nomination of Samsung Electronics Vice Chairman and group heir-apparent Jay Y. Lee as a director, “welcomes that the person with influence is coming to the forefront, in terms of responsible management,” Kang said.

Last year, the NPS backed Cheil Industries Inc’s bid to acquire sister firm Samsung C&T Corp, a merger that had been opposed by Elliott in a bitter battle.