[ASK 2017 SUMMIT] NPS mulls private debt benchmark introduction

The National Pension Service (NPS) is considering introducing a benchmark for private debt in which it plans to increase investment, as the South Korean pension fund is trying to enhance its capabilities and management system for alternative assets, said its Chief Investment Officer Myoun-Wook Kang.

For global hedge fund investment which the world’s No. 3 pension scheme began last November via two fund of funds for $1 billion, it may take more time before starting to commit to a single hedge fund.

“Like large global pension funds and sovereign wealth funds, we are considering setting a separate benchmark for private debt, which factors in the stability and risk-weighted returns of private debt so that we can continue to increase investment in the asset class,” Kang said in a keynote speech for the ASK 2017 Global Private Debt & Equity Summit.

The conference was hosted by the Korea Economic Daily in Seoul on May 17.

He did not elaborate further about the benchmark introduction.

As demand for alternative assets is on the rise, assessing their performance becomes a priority for asset owners. But finding an appropriate benchmark remains a challenge.

Korea Teachers’ Pension is also working to introduce asset class-specific benchmarks for alternatives such as real estate, infrastructure and hedge funds by December 2017, the finance ministry said in March in a statement on the 2017 asset management direction of South Korea’s social insurance schemes.

During the ASK 2017 Summit, major South Korean institutional investors including Korea Post and insurers expressed their intentions to expand overseas private debt investment.

NPS has committed $3.3 billion to credit and mezzanine funds of global private debt, of which it deployed $900 million.

It also has participated in debt financing through co-investments with global private equity and debt managers.

Regarding hedge funds, NPS will gradually increase the size of hedge fund investment, as well as the pool of hedge fund managers.

“We will put more efforts to enhance our capabilities enough to invest directly in a single hedge fund,” Kang noted.

With the assets of NPS expected to nearly double to 1,000 trillion won ($890 billion) in just six years, the $500 billion pension fund is seeking to diversify not only asset allocation, but investment strategies.

“What is the most important in expanding overseas alternative investment is to improve our internal abilities of setting strategies and risk management to keep pace with the size and complexity of investments,” the CIO added.

For global private equity investment, NPS has an outstanding balance of $800 million in six portfolios through mezzanine financing.