http://www.economist.com/node/17913534/print
JUN Kwang-Woo, the boss of South Korea’s National Pension Service (NPS), has a big job on his hands. With an average life expectancy of 80 years, and a birth rate of just 1.15 children per woman—one of the lowest in the world—South Korea is a demographic time-bomb. But the task of ensuring that the country’s ever more numerous pensioners get their monthly payments is complicated by the fact that NPS is what Mr Jun calls “a whale in a pond”.
With assets of 314 trillion won ($280 billion), NPS is by far the largest investor in the country’s domestic fixed-income and equities markets. Listed South Korean firms have a combined market capitalisation of just over 1,000 trillion won. That limits NPS’s investment opportunities at home. What’s more, declining South Korean bond yields are making it harder for the fund to hit its target of a 7% return.
The answer is to put more money into foreign investments. Mr Jun, who spent 12 years at the World Bank, wants to raise the proportion of NPS’s assets invested abroad from 9.8% in 2010 to 12.6% this year, with a rough target of 30% in ten years’ time. As a result South Korean pensioners’ money is increasingly finding its way into international equities and alternative assets. In October the fund joined Kohlberg Kravis Roberts, a private-equity firm, in buying Chevron’s stake in Colonial Pipeline, an American fuel carrier. It has also made trophy property investments, such as the £773m ($1.3 billion) purchase of the HSBC building at Canary Wharf in London and deals in Berlin, Paris and Sydney.
Investments like these, and last year’s purchase of a 12% stake in Gatwick, London’s second-biggest airport, will inevitably change NPS’s profile. It remains a little-known quantity abroad. But this cannot last for ever: by 2015 NPS is expected to have almost 500 trillion won of assets, with 100 trillion invested abroad. The NPS already faces criticism at home for having a “skyscraper agenda”, aimed more at boosting South Korean national pride than at investment returns. Mr Jun rejects any suggestion that the fund is being run for foreign-policy aims: “We are not a sovereign-wealth fund.”
NPS is becoming more assertive at home, too. Many investors reckon that South Korea still shows too little respect for minority shareholders, particularly those who invest the more dynastic of the family-run chaebol conglomerates. Mr Jun refers to corporate governance as a prime factor in the “Korea discount”, which makes South Korean shares the cheapest in Asia on price-earnings ratios and subdues the value of NPS’s domestic investments. As the largest shareholder in many of the country’s listed companies, the fund has plenty of clout and is increasingly ready to use it. The proportion of “no” votes exercised by the NPS at shareholder meetings has risen steadily from 1.2% in 2002 to 8.1% in 2010.
Addressing South Korea’s demography will take more than decent returns. Plans to increase the retirement age beyond 60 will help. Dramatically increasing immigration, or encouraging married women to return to the workforce, would make a big difference, too. In the meantime NPS needs to keep flexing its investment muscles. ◦
No comments:
Post a Comment