Korean Pension Fund Negotiating to Invest in U.S. Pipeline

August 23, 2010

The fourth-largest pension fund in the world, the National Pension Service of South Korea, is in negotiations to invest in a United States oil pipeline company.  This move is part of an ongoing effort by the fund to expand its international investments.

Although the National Pension Service (NPS) would not reveal any details of the proposed transaction, South Korean media stated that the NPS is planning on purchasing Chevron’s entire 23.44% stake in the U.S. pipeline operator, Colonial Pipeline, for approximately $847 million.

The National Pension Service, operated by the government of South Korea, sees this purchase as an integral component of its plan to move into more international investments, with a focus on increasing returns.   A director with the NPS reinforced their motives by explaining how Colonial Pipeline, as well as other U.S. and European businesses, would guarantee stable returns, due to their link to global inflation.

In December of 2009, the NPS appointed a new chairman, Jun Kwang-woo, who has set his sights on increasing the size of the fund’s portfolio, from $100 billion when he arrived to $400 billion by 2014.  Currently, the fund has assets totally $250 billion, with a 1/10th invested in foreign equities.

Analysts agree that the NPS must invest internationally in order to achieve its planned rate of growth.  However, 70% of the fund is still invested in fixed income assets, such as stocks and bonds, located solely in South Korea.

Chevron announced in March its intentions to sell its percentage of ownership in Colonial Pipeline, confident that investors would be attracted to the company’s steady cash flow, market access, and potential for growth.  Colonial Pipeline operates 5,530 miles of oil pipelines that run from Texas to New York.  Chevron is expected to announce its choice of bidders next month.

In another attempt at international investment, NPS recently announced its intentions to by 51% of a Parisian mall, the O’Parinor shopping center, from the Anglo-French property business, Hammerson.  The NPS director commented how investment in the shopping center illustrated their focus upon inflation-linked assets with stable cash flow.  The investment is based upon indicators that the world’s commercial real estate market is set to increase in value.

With ownership of international property at less than 1% of the pension fund’s portfolio, the NPS is planning to greatly expand their growth within this market, specifically in Europe where prices of real estate are still at a low point due to a faltering economy.

Other recent investments by the National Pension Service include their purchase of the London office of the banking conglomerate HSBC for $1.2 billion, and a 12% stake in the Gatwick Airport, also in London.  In January of this year, NPS also reported their intentions to buy an office building in Sydney, Australia.