NPS vows to raise alternative investment ratio, cut bond purchases

South Korea’s National Pension Service (NPS), the world’s third-largest public pension fund, plans to raise the ratio of its alternative investments and buy less debt as part of its long-term goal to boost profitability.

According to its five-year asset allocation plan finalized at a fund management committee on Wednesday, the NPS will invest 55% of its total assets in stocks, 30% in bonds and 15% in alternative assets during the 2024-2028 period.

The new mid-term asset allocation plan compares with this year’s target: 46.2% for stocks, 40% for bonds and 13.8% for alternatives, an asset class that excludes stocks, bonds and cash.

The ratio of stocks will increase by 8.8 percentage points and that of alternative assets will rise by 1.2 percentage points from the end of 2023. Bond investments will decline by 10 percentage points.

The committee, which governs the public fund’s investment policies, raised the fund’s target investment return for the next five years to 5.6% from 5.4% set during last year’s meeting for the five-year plan effective through 2027.

STILL PLANS TO BUY MORE OVERSEAS, ALTERNATIVE ASSETS

The NPS said it is sticking to its plan to gradually increase its investment in overseas and alternative assets to lock in long-term profitability.

At Wednesday’s committee meeting, finance ministry officials urged the pension fund to refrain from boosting the proportion of its overseas assets to help stabilize the domestic foreign exchange market. The pension fund is said to have rejected the idea.

The NPS, which manages 953.2 trillion won ($718.9 billion) in assets as of the end of March, said on Tuesday it likely earned 58.4 trillion won, a 6.4% return on investment, in the first quarter.

Its alternative investment logged a 3.5% rate of return in the first three months of the year.

To improve profitability from its investment in alternative assets, the NPS hired three global asset managers in the first quarter.

Goldman Sachs and Chicago-based Bridge Industrial joined the list of its overseas real estate managers. Coatue Management LLC, a US tech-focused investment firm, became a new general partner for the NPS’ global hedge funds.

Last year, the NPS posted a negative return of 8.2%, or 79.6 trillion won in losses – its worst annual performance since the fund’s launch in 1999.

With Korea’s population aging rapidly, analysts said the public pension fund could be depleted by 2055. The NPS has been aggressively expanding investments in risky and overseas assets for higher returns.

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

In-Soo Nam edited this article.