The South Korean National Pension Service (NPS) is planning to increase the ratio of its funds invested in foreign securities, bonds and alternative investment products to 29.3% by the end of 2018 and approximately 40% by the end of 2022. The ratio was 27% at the end of last year. “The purpose of this move is to better manage investment risks and boost the long-term profitability of our fund management,” the NPS explained.
On the contrary, the NPS is looking to reduce the ratio of its funds invested in South Korea from 73% to 60% or so between the end of 2016 and the end of 2021. Its investment in the local stock market, in particular, is scheduled to be reduced from 19.2% to 18.7% of its funds between this year and 2018 before it is maintained at around 20% at the end of 2022. “We currently have a somewhat large portion in the local stock market and not a few experts have mentioned this matter as well,” the NPS continued to say.
Its investment in foreign stocks is planned to be expanded from 5.3% to 17.7% between 2016 and next year by means of an additional investment of 30.5 trillion won. At the same time, its investment in bonds in South Korea is likely to be declined from 50.7% to 45% between last year and 2022. If the pension fund’s plan goes as scheduled, its stock-bond investment ratio will change from 33.7% vs. 54.9% as of the end of 2016 to 45% vs. 45% in five years.
The pension fund’s average annual target return for the next five years that is based on the adjustment is 5.1%. For reference, its rate of return was 4.75% last year and 5.07% on average from 2012 to last year.