NPS’ 2015 return beats key foreign pension funds; to take passive equities strategy

  • 2016-07-04

The National Pension Service’s (NPS) investment return dipped to 4.57% in 2015, but its performance outstripped those of other top five pension funds in the world, South Korea’s welfare ministry said on July 1, with alternative investments producing double-digit returns for a second straight year.

In its first official response to the Brexit decision, the ministry overseeing the NPS also said that the $450 billion pension fund will implement a passive strategy for domestic and overseas stock portfolios, while reacting promptly to short-term market fluctuations.

“NPS expects that although the extent and breadth of the impact that Brexit has had on financial markets are still limited, its repercussions for global financial markets will continue for some time,” said the Ministry of Health and Welfare in the statement, released after a meeting of the NPS’ fund management committee. At the meeting, the committee approved last year’s return and discussed post-Brexit response steps.

“For domestic and overseas equities, (NPS) will make money allocation mainly based on a passive strategy and build a defensive portfolio in order to respond to market volatility. While tightening management on alternative investments in Britain and Europe, (NPS) will take a cautious stance on new investments to focus on stable management,” the statement added.

The 4.57% return on financial investments last year, hit by the poor performance of overseas bonds, compared with the previous year’s 5.25% and 4.16% in 2013. But the 2015 number beats the 2.7% gain of Norway’s Government Pension Fund Global and the 1.8% of Japan’s Government Pension Investment Fund last year, according to the statement.

The 2015 performance of the NPS is broadly in line with its target of 5% set under its five-year asset allocation plan.

Alternative investments, which account for 10% of the NPS’ investment assets, yielded a return of 12.3% last year, following the 12.5% in 2014. Between 2011 and 2013, NPS earned a single-digit rate of returns on alternatives including infrastructure and private equity funds.

Investment returns by asset class (%)

2014 2015
Alternatives 12.47 12.30
Overseas bonds 9.23 1.52
Overseas stocks 8.94 5.73
Domestic bonds 6.79 4.29
Domestic stocks -5.43 1.67

Source: The Ministry of Health and Welfare

By Dae-hoon Kim

daepun@hankyung.com

<Edited by Yeonhee Kim>