South Korean Pension Lowers Return Target

The engines are not firing as they used to in South Korea – and it’s hurting the pension assets.

(May 29, 2013) — A stuttering economy and gloomy forecast has compelled South Korea’s largest institutional investor to lower its five-year return target by half a percentage point.

The $359 billion state pension fund announced this morning and it had lowered its expectations on stock, bond, and property investments until 2018 from 6.6% to 6.1%, Bloomberg reported.

“The ministry lowered the return target rate on investments for 2014-2018 because we look at the nation’s GDP and the inflation data when setting the target,” Baek Hyoung Ki, an official at the national pension finance division of the health ministry, told the news agency.

A statement from the pension fund showed it is to increase its holdings in equities to more than 30% and sell off some fixed income.

This is a sizeable increase from its previous planned equity increase: 12 months ago it announced plans to increase its equity portfolio from 19.3% by one percentage point this year, with a view to further increase that level by 2016. At the same time, the fund said it would reduce its allocation to domestic fixed income from 59.3% in 2012 to 56.1% in 2013.

At that point, the country’s stock market slumped significantly as its export-driven economy has been hit by European and US financial difficulties.

Today, the country is being battered by a closer cousin – Japan. Its Asian neighbour has seen government intervention drive down its currency and help domestic exporters. This has negatively impacted Korean trade to the extent that its own government has launched packages to try and remedy the situation.

The South Korean government cut its 2013 gross domestic product forecast on March 29 to 2.3% from 3%.

Related content: Emerging Markets Turn to Developed World for Growth