The National Pension Service (NPS) will continue to raise exposure to global equities over the next five years, despite concerns about the impact of the coronavirus, as it is increasing its allocation to risky assets for higher returns.
Global equities will represent around 35% of the NPS’ portfolio by the end of 2025, according to a statement released on May 20 by the Ministry of Health and Welfare overseeing the NPS. It compares with the targeted 30% by end-2024 and a projected 22.3% by the end of this year.
Instead, NPS will cut the proportion of domestic fixed-income products to around 25% by end-2025 from 41.9% at the end of the year.
“NPS is in the asset accumulation phase with ample liquidity because incoming premiums far exceed payments,” Welfare Minister Neung-hoo Park told reporters before unveiling the 2021-2025 asset allocation plan for the NPS.
“Now it needs to do its best to improve long-term returns by making aggressive asset management, which in turn will help stabilize the fund’s balance sheet.”
Under the new allocation plan, risky assets such as equities and alternatives will account for about 65% of the NPS assets by the end of 2025, the ministry said in the statement.
But the annual target return for the 2021-2025 period was set at 5.2%, slightly lower than 5.3% for the periods of 2019-2023 and 2020-2024. It reflects economic growth forecasts and inflation expectations, the ministry added.
The statement was released after Park presided over a regular committee meeting to discuss the NPS’ 2021-2025 asset management plans.
By the end of 2021, NPS’ assets are expected to swell to 849.4 trillion won ($692 billion) with alternatives accounting for 13.2% at 112.3 trillion won.
The ministry reiterated that the allocation adjustment would take place in a gradual manner in consideration of its impact on markets and other conditions.
By Jung-hwan Hwang
<Edited by Yeonhee Kim>