Korean National Pension Fund Loses More Than 8% in 2022

The Republic of Korea’s National Pension Fund reported an 8.22% investment loss for the fiscal year that ended on December 31, which it attributed to combination of monetary tightening by central banks and Russia’s invasion of Ukraine.

However, some of the South Korean fund’s losses were offset by an increased allocation to alternative assets, as well as by foreign exchange gains from a strengthening dollar, as the fund ended year with an asset value of 890.5 trillion won ($684.5 billion).

Domestic equities weighed down the portfolio the most, losing 22.76%, while foreign equities was the second-worst performing asset class with a 12.34% loss for the year. The fund attributed the losses in equities to “ongoing market volatility at home and abroad triggered by the prolonged war in Ukraine and the U.S. Federal Reserve’s aggressive tightening stance to tame surging inflation.”

Due to sharply rising interest rates, the portfolio’s domestic and foreign fixed-income investments fell 5.56% and 4.91%, respectively, while short-term assets were down 0.86% for the year. The fund noted that it was “highly unusual” that equity and fixed-income markets fell in tandem during the year.

“Historically, equity has been considered risky and fixed income has acted as a safe haven, moving in opposite directions and thereby offsetting each other,” the pension fund’s report stated. “That was not the case in 2022 as both plunged simultaneously for the first time since the stagflation in the 1970s in the overseas markets and for the first time since 2001 in the domestic market.”

Alternative investments, which benefited from capital appreciation and realized gains from real estate and infrastructure assets, were the top-performing assets, returning 8.94% during the year. The fund said its alts assets were also aided by the strengthening of the U.S. dollar.

Despite the down year, the pension fund said its traditional asset classes outperformed their respective benchmarks on a time-weighted return basis. Foreign fixed income outperformed its benchmark by 88 basis points; domestic equity by 47 bps; foreign equity by 15 bps; and domestic fixed income by four bps.

The pension fund said that after the challenging year in 2022, global financial markets started 2023 on a stronger footing and the National Pension Service’s investment portfolio, including equity and fixed income, has recovered from the losses that occurred last year.

“Heightened external uncertainty made 2022 an extremely rare year where both equity and fixed income tumbled together,” Kim Tae-hyun, the chairman and CEO of the NPS, which manages the fund, said in a release. “Looking ahead, I expect that financial markets will maintain recovery pace and the fund will generate better returns in 2023.”