Korean pension funds log above-benchmark H1 returns

South Korea's major pension funds have posted robust investment returns above their benchmarks in the first half of this year, driven by double-digit returns from stock markets.

From alternative investments, both the Korean Teachers' Credit Union (KTCU) and the Teachers' Pension enjoyed about 10% returns on average, reflecting the KTCU's lucrative exits from two overseas investments, according to their public disclosures. That compared with the 3.54% return for the National Pension Service's (NPS) alternatives assets in the January-May period of this year.

But most of the country's retirement funds suffered negative returns from domestic fixed-income securities, which account for 30-40% of their portfolios, after bond yields spiked in May and June on growing market talk of upward inflationary pressures and interest rate hikes. 

The NPS, with 892 trillion won ($780 billion) in assets under management, achieved a 5.82% return on investments on average as of the end of May of this year. Both domestic and overseas equities, which make up 45.6% of its portfolio, produced average returns of 12.98% and 14.34%, respectively, beating their benchmarks by one to three percentage points during the period. 

KTCU, TEACHERS' PENSION, GEPS

The KTCU's first-half return of 9.1% is higher than the 5.4% return it posted in the year-earlier period. On top of the 14.3% return from its equities investments both at home and abroad, alternatives generated a 10.1% return on average.

For the first half, it booked the net proceeds of 147.4 billion won and 130 billion won each from the divestments of Aberdeen Asset Management's first PPP infrastructure fund and Ellie Mae Inc., a US cloud-based platform provider.

For the entire year of this year, it is targeting a 3.7% return on average, below last year's 10% which marked its best investment return in 11 years.

The Teachers' Pension, with 23 trillion won in assets under management, posted a cumulative return of 8.22%, a threefold rise from the 2.49% in the year-earlier period. Both domestic and overseas stocks, which take up 34% of its total investments, delivered double-digit returns. Alternatives, with a proportion of 20% of the portfolio, produced a 9.19% return.

For the Government Employees Pension Service (GEPS), equities returned 15.5% in the first half of this year, with alternatives posting a 7.5% return. On average, its total financial assets worth 8.2 trillion won, including short-term reserves, yielded a 5.6% return on investments in the January-June period. 

FIXED INCOME SECURITIES

For NPS, GEPS and Teachers' Pension, the average returns from domestic fixed-income securities ranged from minus 1.1% to minus 1.94% for the first six months to June.

Unlike them, the KTCU reported a positive return of 3% from domestic fixed-income investments, beating minus 2.4% of its benchmark. Fixed income takes up 17.2% of the KTCU's 47 trillion won in assets under management as of the end of June.

Write to Jong-woo Kim and Jun-ho Cha at jongwoo@hankyung.com
Yeonhee Kim edited this article.