Korean National Pension Fund Returns 6.81%, Hits $600 Billion in AUM

Pension tops 700 trillion won  for first time in 31-year history.

South Korea’s state pension fund reported an investment return of 6.81% for the first four months of the year, surpassing the 700 trillion won threshold in total assets under management for the first time in its 31-year history.

According to data compiled by the National Pension Service (NPS), the fund’s operator, the fund’s assets totaled 701.2 trillion won ($600 billion) as of April, up 62.4 trillion won from the end of 2018. That’s also up from 100 trillion won in 2003, 300 trillion won in 2010, and 500 trillion won in 2015. The NPS also reported that the fund has returned 5.4% annualized since its inception in 1988.

For the year until the end of April, the pension fund earned 9.97% from domestic equities, and 20.34% from investments in foreign equities, according to Yonhap News Agency. Meanwhile domestic and foreign bonds returned 1.42% and 6.68%, respectively, as alternative asset investments earned 3.46% for the year up to the end of April.

The NPS said that while its earnings reached 41.2 trillion won in 2017, it posted a loss of 6 trillion won last year due to intensifying trade disputes between the US, and tough financial market conditions, according to Yonhap. The NPS also said that due to the country’s rapidly aging population, which requires larger payouts, the pension fund could start recording losses in 23 years.

South Korea’s fertility rate is expected to fall to an all-time low this year, according to a study commissioned by the Chosun Ilbo newspaper. The average number of babies born per woman of reproductive age is due to be as low as 0.96, bringing it below one for the first time in history.

In a move to counter the effects of a falling fertility rate, which include underfunded pensions, expanding debt, and economic decline, the Korean government unveiled proposals to help reform the country’s pension system in December. And late last year, the NPS said it would increase its ratio of risk assets, such as stocks and real estate, to 60% from 50%, and raise the ratio of overseas investment to about 45% from 30% in a move to help boost returns.

The fund’s manager said that at this stage of the fund’s maturity, the focus is on maintaining stable returns and diversifying risks by scaling down the allocation to domestic fixed income, while increasing the investment in domestic and foreign equities and alternatives under a portfolio diversification strategy.

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