|National Pension Service (NPS) headquarters in Jeonju, North Jeolla Province / Courtesy of NPS|
NPS to increase alternative investment up to 15 percent of its total assets by 2024
By Anna J. Park
The National Pension Service (NPS), a public pension fund for Korean people, turned out to have newly invested around 23 trillion won ($20.4 billion) in overseas alternative assets last year alone, in an attempt to create a stable source of profit during the COVID-19 pandemic.
It is the NPS' largest annual amount ever put in the foreign alternative investment category, and this takes up nearly a quarter of the state-run pension fund's entire alternative investment portfolio. The government-run pension fund invested mostly in blue-chip real estate and global infrastructure facilities.
"By partnering with major global asset management firms, the NPS constantly looks for global alternative asset investment opportunities that could bring out stable profits in uncertain market conditions," an NPS official explained, adding that the public pension fund mended its investment process that could facilitate faster and more efficient decision-making in overseas alternative investments.
The NPS also made plans recently to newly invest $150 million in international timberland funds for the first time ever, aiming to log a stable profit growth as well as to meet environment, social and corporate governance (ESG) standards.
The move is in line with the NPS' goal of increasing alternative investments to up to 15 percent of its asset portfolio by 2024 to diversify its asset allocation. As of the end of last year, the alternative investment accounts for 10.9 percent of the public fund's total assets of around 840 trillion won ($747 billion).
However, the rate of returns in alternative investments has not been that strong so far.
While the NPS' total financial investment profit in 2020 stood at 9.7 percent, or 72 billion won, the state-run pension's alternative investment yielded an annual return of 2.38 percent, much lower than the average rate of annual returns.
The rate of returns in overseas alternative investment is much lower than that. Reflecting the loss from the foreign exchange rate, the NPS earned 0.02 percent in foreign alternative investments in 2020. But the returns in 2020 could be regarded as an exceptional case, given the pandemic shocks in foreign real estate markets. The five-year average profit rate in overseas alternative investments stood at 8.1 percent.
By category, local stocks' annual profit rates were the highest among assets at 34.89 percent in 2020, followed by overseas stocks at 10.76 percent, alternative investment at 2.38 percent, domestic bonds at 1.74 percent and foreign bonds at minus 1.61 percent.