NPS posts 7.6% return as of October 2021

South Korea’s National Pension Service (NPS) posted a 7.6% rate of return as of October 2021, according to a preliminary data report by its investment management arm. By asset classes, NPS’ overseas equities achieved a 27% rate of return, while alternative investment, overseas bonds, domestic equities and domestic bonds posted 10%, 5.8%, 5.3% and negative 3% returns, respectively.

The returns from domestic and overseas alternative investment are mostly from foreign currency translation gains, given the weakened Korean won, and interest and dividend income, the report said. The alternative investment performance didn’t reflect the year-end fair value measurement, the report added.

Domestic and overseas equities achieved relatively high returns thanks to market expectations for economic recovery, the NPS report said. The Kospi, Korea’s main stock market index, and MSCI ACWI ex Korea Index, an MSCI index capturing large and mid-cap equities of 49 developed and emerging markets excluding Korea, rose  3.38% and 17.8%, respectively, from January to October of 2021.

The interest rates of domestic and overseas bonds increased due to concerns over inflation last year. While this led to a decrease in the return rate of bonds, overseas bonds performed decently thanks to the Korean won's drop against the US dollar. On Oct. 12, 2021, the won dropped to as low as 1,200.4 against the dollar in the domestic currency market, the softest point since July 28, 2020, when the won fell to 1,200.1. 

The interest rates of the three- and 10-year government bonds rose 113.7 basis points and 84 bps, respectively, from January to October of 2021. During the same period, the interest rate on 10-year US government bonds rose 66.7 bps.    

As of October 2021, NPS allocates 11.2% of its assets in alternative investment, according to the report. Domestic and overseas equities take 17.9% and 27.4%, respectively, while domestic bonds and overseas bonds account for 36.6% and 6.6%, respectively. The pension service is the world’s third-largest pension fund, with 918.7 trillion won ($770.1 billion) in fund reserves as of the end of the third quarter in 2021.

At the end of last November, NPS announced it earned 67.4 trillion won ($56.5 billion) return for the first three quarters of 2021.

Write to Jong-woo Kim at jongwoo@hankyung.com
Jihyun Kim edited this article.