NPS’ 2016 overseas alternative investment return drops to 12.34%

Mar 02, 2017 (Gmt+09:00)

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Overseas alternative investments remained the best-performing segment for South Korea’s National Pension Service (NPS) for the third consecutive year in 2016, but their return declined further to 12.34% from the previous year’s 14.90%, according to preliminary data from the country’s Ministry of Health and Welfare.

Overseas alternative assets had far outperformed other asset classes for the world’s No. 3 pension scheme. But their average return continued to shrink since peaking at 15.26% in 2014, while the NPS have been expanding alternative investments into a broader range of targets.

NPS’ overseas alternative investments amounted to 41.7 trillion won ($37 billion) at the end of 2016, accounting for 7.5% of total assets, or 27.7% of its entire overseas investments. The share of overseas alternative investments increased from 6.3% at end-2015.

Between 2012 and 2016, overseas alternative investments delivered an average return of 11.18%, compared with 5.07% on total investments during the same period. For the recent 10-year period between 2007 and 2016, the return on total investments was 5.38% on average.

Overall, NPS made a 4.75% return from 2016 investments, an increase from the previous year’s 4.57%, buoyed by a double-digit return on global stock portfolios: overseas stocks delivered a 10.13% return, the strongest since 2014.

nps-investment-return-historical-chart

NPS’ 2016 return was the highest among global pension funds, according to the welfare ministry which cited preliminary data: Canada’s CPP (3.7%), ABP of the Netherlands (2.7%), Norway’s GPFG (2.7%), Japan’s GPIF (1.8%) and CalPERS (-0.1%).

The welfare ministry said in a statement on Feb. 28, which included the preliminary data, that NPS will boost the number of staff in its overseas offices to 40 this year from 23 in 2015, as it plans to lift the proportion of overseas assets to 35% or above by end-2021. It allocated 150.8 trillion won to overseas assets, or 27.1% of its assets of 558.3 trillion won at end-2016.

The statement was released, shortly after the NPS reported its end-2016 investment status to a committee of the ministry which oversees the pension fund. But it did not provide a breakdown on individual alternative asset classes.

Meanwhile, the pension fund will lower the proportion of overseas stocks managed by outside investment firms by 10% points to 55% to 75% to save management fees. Overseas stocks made up 15.4% of the fund’s assets at end-2016, worth 85.7 trillion won.

nps-2016-return-by-asset-class