Korea’s Pension Fund to Buy More Overseas Stocks, Reduce Bonds

South Korea’s National Pension Service, the country’s biggest investor, plans to allocate more funds to overseas equities and reduce local bond holdings.

The world’s fourth-largest pension fund, which had 436 trillion won ($428 billion) in assets as of March, will increase its weighting in overseas equities to 11.6 percent in 2015, the Ministry of Health and Welfare, which oversees the NPS, said in an e-mailed statement today. That compares with the 2014 target of 10.5 percent. The fund will cut local bond holdings to 52.9 percent from 54.2 percent targeted for this year.

The NPS is seeking to boost holdings in overseas assets as the fund outgrows its domestic market. The fund said in February it planned to double its investment staff and seeks to emulate Temasek Holdings Pte, the Singapore state-owned investment firm with about 70 percent of its holdings overseas.

Global equity markets are outperforming Korean shares. The MSCI All-Country World Index has gained 17 percent in the past year, triple the benchmark Kospi index’s 5.7 percent advance. The Korean won has surged 11 percent versus the dollar in the period, the most among 31 global peers, sparking concern its strength will erode the nation’s competitiveness.

NPS aims to boost the proportion of alternative investments including infrastructure, property and private equity to 11.5 percent of assets in 2015, up from 11.3 percent targeted in 2014, according to today’s statement. The fund plans to keep its target for overseas bonds unchanged at 4 percent.

Stock Holdings

The pension fund has become too big for South Korean markets after growing to about 33 percent of the nation’s gross domestic product, Chief Executive Officer Choi Kwang said in an interview in February. The fund must send more money overseas to avoid roiling local markets when it eventually becomes a net seller of assets to fund payouts to beneficiaries, he said.

NPS holdings of local stocks account for about 7 percent of the benchmark Kospi index and the pension fund is the biggest outside shareholder in Samsung Electronics Co., the country’s largest company by market value.

The pension fund’s latest five-year asset allocation plan calls for an increase in equity holdings to more than 35 percent by 2019 from 30.1 percent last year, the health ministry said in a statement in May. Foreign stocks will account for 15 percent of its total equity holdings by 2019, from 10.4 percent at the end of 2013, while domestic equities will comprise at least 20 percent.

The fund bought Chevron Corp.’s stake in U.S. pipeline operator Colonial Pipeline Co. in 2010, while other overseas property investments include HSBC Holding Plc’s London headquarters and Gatwick airport in the U.K.

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