Govt pension fund makes first foray into overseas infrastructure

South Korea's Government Employees Pension Service (GEPS) has awarded a combined $105 million mandates to Goldman Sachs, Macquarie and Paris-based Ardian to make its first investment in overseas infrastructure.

The mandates also mean that GEPS is resuming cross-border alternative investments put on hold last year because of the difficulty of conducting onsite inspections since the COVID-19 pandemic began.

The three investment companies each are receiving $35 million, or €35 million in commitments from the GEPS, according to investment banking sources on July 5.

In the selection process, GEPS put its priority on stable returns the external managers would offer, and thus gave high scores on those with a long track record in the infrastructure sector. Ardian is one of Europe's largest private equity firms and diversifying into equity investments in companies running multiple infrastructure assets.

GEPS focuses on core infrastructure assets that produce a steady stream of cash flows to prepare against inflationary pressures and interest rate increases. Its targets range from traditional infrastructure assets such as roads, harbors and airports to niche assets including data centers and renewable energy-related facilities.

"Given the weakening role of bonds as a safe-haven asset, alternative investments are now taking a more important role than before," a GEPS official told Market Insight. "Thanks to its great defensive characteristics, core infrastructure will help to further solidify our portfolio."

Its expected return from the overseas infrastructure investments was slightly lowered to 6% per year, from the 7-10% stated in its request for proposals issued in April.

Of 8.2 trillion won ($7.2 billion) in assets under management, the government pension scheme has allocated 1.8 trillion won to alternatives excluding cross-border infrastructure.

It had shunned overseas infrastructure because of its long maturity, which seemed unsuitable for its income-expenditure structure. GEPS' benefit payouts have already exceeded the contributions from its members.

The mandates were awarded shortly after the pension fund has decided to abandon its onsite only due diligence requirements on alternative deals. Since the pandemic outbreak last year, GEPS had suspended cross-border alternative investments, let alone committing capital to global funds.

It aims to gradually increase alternatives to 26.8% of its portfolio by 2022 and 33% by 2025, versus 23% at the end of last year.

In January this year, Macquarie received $200 million 

Write to Jung-hwan Hwang at jung@hankyung.com
Yeonhee Kim edited this article.