Equities, Fixed Income Fuel 9.1% Return for Korean Pension Fund in 1st Half of 2023

The Republic of Korea’s National Pension Service reported a 9.09% investment return for the first half of 2023 to raise its total asset value to 983 trillion won (approximately $740 billion), up from 890.5 trillion won at the end of 2022.

“Despite fears of the global banking crisis and recession at the beginning of this year, NPS performed well with strong gains from equity and fixed income assets, fueled by a slowdown in inflation and the adjustment of interest rate hike pace,” the pension giant said in a release.

The robust returns were a sharp reversal of fortune for the world’s third-largest pension fund, which lost more than 8%, 79.6 trillion won, in 2022 when it “faced unprecedented declines in both equity and fixed income markets.” However, according to the pension fund, over the first six months of 2023, all losses from the previous year were recouped, and an additional investment income of 4.4 trillion won was generated.

Within the NPS investment portfolio, the top performing asset class was global equity, which returned 17.24%, followed by domestic equity, which earned 17.12%. Global fixed income returned 6.21%, while alternative assets and domestic fixed income returned 5.01% and 2.72%, respectively.

The lion’s share of the first half returns came during the first quarter of the year, when the pension fund returned 6.35%, approximately 58.4 trillion won.

According to the pension fund, despite concerns over a banking crisis in the U.S., domestic and global equity “delivered solid returns, boosted by improved appetite for risky assets as the U.S. debt ceiling issue was resolved and economic indicators showed a positive trend.” The release also stated that despite central banks continuing to raise interest rates, the decline in domestic and global fixed-income yields was limited, thanks to expectations of cooling inflation and a slowdown in the pace of rate tightening.

The NPS also announced that most of the investment income from alternative assets comes from interest and dividend income, as well as foreign exchange gains from a rise in the dollar/won exchange rate. However, the fair values of alternatives are assessed at the end of the financial year and are not reflected in the pension fund’s quarterly performance.

“2022 was a very challenging year for asset management due to unfavorable economic and investment conditions,” NPS Chairman and CEO Kim Tae-hyun said in a release. “We will continue to strive to enhance investment returns by building a well-diversified portfolio and capturing new investment opportunities.”