Skip to content
  • KOSPI 2909.32 -27.12 -0.92%
  • KOSDAQ 992.34 -13.55 -1.35%
  • KOSPI200 381.63 -3.44 -0.89%
  • USD/KRW 1193 3.30 0.28%
  • JPY100/KRW 1,049.53 17.74 1.69%
  • EUR/KRW 1,347.14 13.61 1.01%
  • CNH/KRW 186.64 0.50 0.27%
View Market Snapshot

Pension funds

NPS to cut outsourcing of foreign bond investments

Its assets top 900 trillion won mark as of end-June for the first time with 7.5% return in H1

By Aug 25, 2021 (Gmt+09:00)

NPS Investment Management building
NPS Investment Management building

South Korea’s National Pension Service, the world’s third-largest pension fund, was set to reduce outsourcing of foreign bond investments to cut fees even as it plans to nearly double holdings of overseas debts.

The NPS said on Aug. 25 said its top decision-making body Fund Management Committee, decided to lower outsourcing of overseas bond investment to 40-80% of total from the current 50-90%. The pension fund with 908.3 trillion won ($777.7 billion) in assets as of end-June plans to directly manage more of overseas debts holdings that stood at 53 trillion won, or 5.8% out of the total. It aims to increase the weight of the bonds to 10% by 2026.

The South Korean pension scheme outsourced operations of 53.5% of the bond holdings to financial institutions such as foreign asset managers as of the end-April 2020.

“If we reduce the outsourcing by the end of the next year to 40%, the outsourcing fees are estimated to fall by 13 billion won a year,” said an NPS source. “We could cut the fees by around 5.5 billion won a year as we have been directly managing foreign bond-backed securities since last year.

STRONG STOCK MARKETS SUPPORT RETURNS

The NPS reported a return of 7.49% in the first half, lower than a 9.7% in 2020 but higher than the average annual return of 7.19% over the past five years. The fund logged a 17.86% return from foreign stocks and a 15.27% yield from South Korean shares, both beating their benchmarks. It also posted a 5.04% return from alternative investments. On the other hand, it suffered a 1.12% loss from local bond investments on rising interest rates.

The pension scheme reported a combined 62.6 trillion won of net investment income during the first six months of the year, raising its accumulative investment income to 502.3 trillion won and helping its total assets to top the 900 trillion won mark for the first time.

“The asset is expected to exceed 1,000 trillion won next year,” said Kwon Deok-chul, Minister of Health and Welfare, who chairs the Fund Management Committee.

The NPS held 341 trillion won in local bonds, or 37.6% of its total asset, 223.8 trillion won in foreign stocks, or 25.8%, and 184.3 trillion won in domestic shares, or 20.3%. Its alternative investment totaled 94.6 trillion won, or 10.4%, with 27 trillion won in foreign property and 18 trillion won in overseas infrastructure.

Its holdings in local stocks and bonds exceeded plans by 0.4 percentage point and 0.7 percentage point, respectively, while alternative investments were 1.5% lower than its plans. That indicated the NPS may spend more on alternative investments.

Write to Jae-Fu Kim and Jong-woo Kim at hu@hankyung.com

Jongwoo Cheon edited this article.

Comment 0

0/300