NPS' alternative assets underperform benchmark amid high inflation

National Pension Service (NPS) in South Korea, the world’s third-largest pension fund, saw its returns on alternative investments last year underperform the benchmark (BM) by more than 300 basis points, slashing the relative value of the whole assets.

NPS’ alternative investment returns last year underperformed BM, or the standard for comparison, by 3.15 percentage points, according to the health ministry and the pension fund on Thursday.

The alternative assets, comprised of equity, debt, real assets and hedge fund in the private markets, achieved an 8.9% return last year; the other asset classes posted losses.

The relative value of its alternative investment was impacted as the consumer price index-linked BM surged amid inflation.

While local equities and overseas bonds in NPS portfolio outperformed their respective BM by 47 and 91 basis points last year, the overall investment returns underperformed by 0.2%.

The pension fund posted a negative return of 8.2% for 2022, the worst-ever annual performance since the fund management arm was founded in 1999. Its assets under management dropped to 890.5 trillion won as of end-2022 from 948 trillion won a year earlier.

Write to Byeong-Hwa Ryu at hwahwa@hankyung.com

Jihyun Kim edited this article.