Teachers' Pension to up global alternatives to 19% of AUM by 2027

Teachers’ Pension (TP), South Korea’s major pension fund for private school employees, will accelerate investment in domestic bonds while increasing exposure to global alternative assets in the mid to long term.

The fund is managing 24.6 trillion won ($18.6 billion) in assets as of end-April. Founded in 1975, the retirement fund works to benefit around 320,000 members in terms of their retirement, death and occupational diseases and injuries.

“TP had cut exposure to public bonds and increased equities amid low interest rates until 2021. With rate hikes near to end, we will expand exposure to Korean bonds from this year,” said the fund's Chief Investment Officer Lee Kyu-hong during an interview with The Korea Economic Daily on Thursday.

Lee became chief at TP in October 2019. Before then he served as a chief executive officer at Seoul-based Ascendas Asset Management in 2018. Lee was also CIO at NH-Amundi Asset Management between 2013 and 2018 and took the same title at Eastspring Investments Korea from 2004 to 2013. He studied business management at Yonsei University in Korea and earned an MBA from New York University.

The pension fund invested 29.6% of its assets under management (AUM) in domestic bonds as of the end of last December. It aims to raise the proportion to 34% this year.

The institutional investor also targets to expand overseas alternative investments from the current 14.3% of AUM to 19% by 2027, the CIO said.

“TP values balanced investment portfolio more than spotting good assets,” he said.

“Our fund management focuses on mid-to-long-term strategies set for a five-year period. We compare our future goals with the current investment portfolio and adjust the proportion of assets,” Lee added.

The pension fund shifts its short-term strategies according to quick changes in the financial market. “We increased domestic bonds and reduced overseas ones when the Korean won weakened to above 1,400 against the US dollar in the fourth quarter of 2022. TP maintains a sound balance in its overall portfolio, while remaining nimble enough to catch signals and changes in the capital market,” the CIO added.

TP will hire a few private equity firms to operate a total of 400 billion won. Lee said he will see if the new general partners (GPs) can significantly increase value of target companies while using low leverage.

“You were able to buy a good company at a low price in the past, and it is not easy to do so today. So, we are looking for PE managers strong at increasing corporate values and those with stable fund operations with low-leveraged investments,” he added.

TP’s fund management posted an 8.3% return from the beginning of January to the end of April. The pension fund made a 7.8% loss last year amid the downturn of the financial market. It logged 11.5% in 2020 and a record-high 12% return in 2021.

Write to Jong-Kwan Park and Jun-Ho Cha at pjk@hankyung.com

Jihyun Kim edited this article.