NPCÆs executive committee, with the approval of its regulator, the Ministry of Health and Welfare, has recently approved a new five-year plan. After years of experimenting with international outsourcing and new asset classes such as real estate and private equity, the NPC is now supposed to adopt a more risk-taking, internationally diversified strategy.
ôOur executive committee realises that the fund has become too big for the domestic market,ö says an NPC official. ôThis is a radical change. It may take time for us to adapt. But the decision has been made.ö
Next year, NPC will increase international allocations across the board, although it will put a special emphasis on equities, where it now has little exposure. It could increase its international exposure up to 10% of total AUM by the end of next year, with an eye to gradually increasing this.
It has spent 2006 making its first investments into global private equity, and now has allocations to mega-sized funds managed by Bain, Blackstone, KKR and TPG. It is also in the process of seeding its first international real estate fund, and is looking to commit to another by the end of the year. The NPC official declined to name the managers.
The fly in the inkpot is not the timing but NPCÆs capacity to implement the new strategy. The senior investment officials there are not trying to time markets. Their bigger concern is finding the best managers in various asset classes. ôItÆs scary because we wonÆt know if we made the right choice for a long time,ö says an official, noting that the organisation is in the process of designing its own rules and procedures for manager selection and monitoring.
The other challenge is NPCÆs systems, which were built to handle domestic investments. It needs to upgrade its IT platform to accommodate new security types and multiple currencies. And it is always under pressure to hire qualified investment professionals.
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