Monday, January 3, 2011

Korea's National Pension Investing in Energy

Saeromi Shin and Shinhue Kang of Bloomberg report, Korea's National Pension Plans Private Equity Fund for Energy Investments:

National Pension Service, South Korea’s biggest investor, may set up a private equity fund with the nation’s business groups, including Samsung Group and Hyundai Motor Group, to invest in overseas resource development.

SK Group, GS Group and KT Corp. may also join the plan, Kim Seok Joo, a spokesman for the pension fund, said by phone today. The timing and size of the fund have yet to be decided, he said.

“We may sign a preliminary agreement with major companies to invest in energy resources,” said Kim, whose pension fund manages 317 trillion won ($282 billion) in assets.

South Korea, Asia’s fourth-largest crude importer, has said it aims to boost supplies of oil and gas from overseas resources owned by the nation’s companies to 30 percent of its annual requirements by 2019 from 9 percent in 2009.

National Pension said in October it bought a stake in Colonial Pipeline Co., operator of the largest pipeline linking U.S. Gulf Coast refiners and East Coast markets, to diversify its portfolio. In September, state-owned Korea National Oil Corp. also won control over Dana Petroleum Plc in a 1.87 billion-pound ($2.9 billion) hostile takeover.

Resource Bets

Funds are increasing their investments in resources as energy costs rise. Hedge funds raised bullish bets on crude oil to the highest level in more than four years on speculation that futures will climb as the U.S. recovers from the deepest recession since the 1930s.

The funds and other large speculators increased net-long positions, or wagers on rising prices, by 4.6 percent in the seven days ended Dec. 28, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the top total in records going back to June 2006.

The wagers gained on signs that demand will advance as the U.S. economy improves. Analysts have forecast that prices may top $100 a barrel for the first time since the beginning of the financial crisis in September 2008. Global oil use will increase 1.7 percent to a record 87.8 million barrels a day this year, according to the U.S. Energy Department.

The Chosun Ilbo newspaper reported earlier the fund will be formed next month.

Last August, the National Pension boosted their equity stake. The fund was one of the top performers in 2008, down only 0.75% that year. These large strategic investments are a sign that things are heating up in the energy sector. One blog I highly recommend you track on a daily basis is oiprice.com. The choice of going the private route makes perfect sense as there are plenty of opportunities private energy deals. Other large pension funds and sovereign wealth funds are also investing in private energy deals, which bodes well for the sector.

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