NPS boosts allocation to direct lending, secondaries

The National Pension Service (NPS), the world’s third-largest pension fund, has been further diversifying its portfolio through increased exposure to direct lending and secondary deals since introducing a new benchmark portfolio framework this year, its Chairman Kim Tae-hyun said on Wednesday.

The new benchmark approach allows the South Korean pension scheme to flexibly invest in new assets, provided they meet the preset risk-return requirements, rebalancing its portfolio overweight in private equity.

“With the introduction of the new benchmark portfolio, we will be able to invest more flexibly and swiftly in products that were previously excluded from our predefined asset class categories,” Kim said in a keynote speech at the global investment conference ASK 2025.

To that end, the NPS has committed about 4 trillion won ($2.9 billion) to 11 new direct lending products as of the end of 2024.

"We are diversifying our portfolio by expanding investments in the secondary market, which offers easier liquidity management and portfolio rebalancing," he told the alternative investment conference hosted by The Korea Economic Daily.

GP SELECTION CRITERIA

To enhance the performance of private equity, the top-performing asset class for the pension fund, the NPS will add a consideration of how investment firms can contribute to portfolio company growth to its selection criteria for general partners. 

“We want to distinguish between returns driven primarily by asset sales and those generated through sustainable growth, such as revenue increase in portfolio companies,” Kim said.

To secure high-quality investment opportunities and closely monitor overseas investments, it will continue to empower overseas offices in New York, London, Singapore and San Francisco to make direct investment decisions. Their role had been largely limited to back-office support.

In Jeonju, where the NPS is headquartered, the chairman said that eight of its global general partners operate offices, including Franklin Templeton, Blackstone, StepStone, Hines and Tishman Speyer. Last week, PGIM opened a liaison office in the city last week, Kim added.

As it is diversifying its portfolio, it will enhance risk monitoring and tighten risk management standards by incorporating AI and deep learning to analyze data from sources like news and social media.

The NPS manages 1,213 trillion won ($875 billion) as of the end of 2024. In 2024, it posted an all-time high 15% return on investments.

Write to Yeonhee Kim at yhkim@hankyung.com
 

Jennifer Nicholson-Breen edited this article.