Bloomberg News

South Korea’s No. 2 Public Pension Fund to Boost Equities

February 14, 2012

(Adds targeted returns in fifth paragraph.)

Feb. 8 (Bloomberg) -- Korea Teachers Pension, the nation’s second-largest public pension fund, plans to increase its domestic stock holdings this year on the prospect Europe will resolve its debt crisis, spurring demand for riskier assets.

The fund aims to boost its local equities allocation to 22 percent of its assets, from about 18.6 percent last year, while cutting the weighting of local debt, said Chief Investment Officer Lee Yun Kyu, who helps manage $8.5 billion in assets. South Korea’s benchmark Kospi index will extend the 8.5 percent rally this year, he said in an interview at his Seoul office.

“I see more upside potential in stocks, and we’ll make bets accordingly,” Lee said yesterday. “Europe’s debt crisis will be contained, and overseas shipments of South Korea’s key exporters will remain solid.”

South Korea’s stock gauge has rebounded from an 11 percent drop last year as exports to the U.S. recover, while slowing inflation and Europe’s crisis allows policy makers to cut or hold off on raising interest rates. Global manufacturing picked up in January, with factory indexes from China to Germany and the U.S. showing growth. South Korea’s National Pension Service, the nation’s biggest investor, said in June last year it will increase the weighting for local stocks.

Korea Teachers Pension, which posted returns of about 1.5 percent last year, is targeting 6 percent returns in 2012, said Lee. The Kospi is likely to extend its gains to 2,100, which represents a 6 percent advance from yesterday’s close, he said. The index rose 0.4 percent to 1,990 at 9:49 a.m. in Seoul.

Yields Drop

Private-school employees are obliged by law to contribute to the Korea Teachers Pension, set up in 1974 and run by the Ministry of Education, Science and Technology. State school teachers contribute to the separate Government Employees Pension Service. The country’s biggest public pension fund is National Pension Service.

Korea Teachers Pension plans to cut its domestic bond allocation to 51.3 percent this year from a preliminary 58.6 percent in 2011 as a decline in yields makes it harder to gain promised returns, Lee said. South Korea’s average sovereign yields dropped 44 basis points last year to 3.74 percent, according to data compiled by HSBC Holdings Plc.

National Pension, which had 346 trillion won ($309 billion) in assets as of November, said last year it will increase the weighting for local stocks to 19.3 percent of assets in 2012 from 18 percent, and lower the weighting for domestic bonds.

‘Bargain’ European Assets

Korea Teachers Pension, which is also planning to boost overseas assets and so-called alternative investments to diversify, is interested in buying European real-estate and non- performing loans as the region’s banks put more assets for sale to boost liquidity and match stricter capital rules, Lee said.

“This may be a chance to buy good assets at a bargain,” Lee said, adding that French banks with large amount of loans to indebted European countries are most likely to sell assets. “We’ll keep an eye on investment opportunities there,” Lee said, without providing further details.

Greek Prime Minister Lucas Papademos held a meeting yesterday with the European Commission, the European Central Bank and the International Monetary Fund, to put the final touches on terms required for a 130 billion-euro ($172 billion) aid package. At stake is whether Greece wins the bailout, secures a debt write-off with private creditors and remains in the euro region.

Overseas shipments to Europe dropped 44.8 percent from a year earlier in the first 20 days of January, the Ministry of Knowledge Economy said on Feb. 1. Exports to the U.S. rose 23.3 percent, while those to China, the biggest buyer of South Korean goods, increased 7.3 percent, bolstering the outlook for companies such as Samsung Electronics Co., a mobile-phone maker that derived more than a quarter of sales from America in 2010, according to Bloomberg data.

Korea Investment Corp., the nation’s $43 billion sovereign wealth fund that spent about 70 million pounds ($108 million) in December to buy a building in London’s financial district, said on Jan. 18 European assets are “attractive,” and it may buy more real estate.

--Editors: Allen Wan, Chan Tien Hin

To contact the reporters on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net; Jiyeun Lee in Seoul at jlee1029@bloomberg.net

To contact the editors responsible for this story: Darren Boey at dboey@bloomberg.net; Sandy Hendry at shendry@bloomberg.net


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