The National Pension Service (NPS) suffered a loss of more than 16 trillion won (US$14.34 billion) in its assets in October as its investment return entered into negative territory again in one month, according to a report released by the NPS fund management committee on Dec. 28.
The NPS lost 15 trillion won (US$13.44 billion) in the domestic stock market alone in October, with its investment return on Korean stocks recording minus 16.57 percent.
The poor performance in October cut the total assets of the public pension fund to 637.04 trillion won (US$570.82 billion) from 653.63 trillion won (US$585.69 billion) in September.
The value of domestic stocks held by the NPS also dropped from 123.94 trillion won (US$111.05 billion) to 108.09 trillion won (US$96.86 billion) over the same period.
In other words, the NPS saw its assets dwindle 16.59 trillion won (US$14.87 billion) just in a month, including the 15.03 trillion won (US$13.47 billion) loss incurred in the domestic stock investment.
The NPS recorded a relatively high rate of return on bonds and alternative investments but the figure was not enough to cover the sharp plunge in the overall rate of return. Its investment return on assets other than local stocks came to 1.64 percent on foreign stocks, 3.47 percent on domestic bonds, 4.53 percent on foreign bonds, 7.57 percent on alternative investments and 2.32 percent on short-term funds.
The problem is that the NPS’ investment return will fall further in the months to come. Its investment return on foreign stocks is highly likely to go negative after November. In fact, the rate already plunged to 1.64 percent in October from 8.17 percent as of the end of September. The figure will get worse if the sharp drop of foreign stocks on “Black Christmas,” when the Dow Jones Industrial Average and Japan’s Nikkei index dropped 2.9 percent and 5 percent, respectively, is reflected. The amount of NPS foreign stock assets also decreased from 125.38 trillion won (US$112.34 billion) to 119.44 trillion won (US$107.03 billion).
Experts point out that it is urgent for the NPS to reform its operating system to improve its investment return. They note that the total assets of the NPS will decrease this year, with the trend forecast to continue for a while.
Shin Sung-hwan, a professor of finance at Hongik University, said, “Globally, interest rates have begun to go upward. The global stock market, which had been on the rise after the financial crisis of 2008, has become bearish. The NPS needs to reallocate its assets as uncertainty has increased in the global financial market, but its current operating system is focused only on achieving a return higher than the target rate.”
Some analysts also say that the NPS needs to rapidly increase the proportion of alternative investments. Jun Kwang-woo, former chairman of the NPS, said, “When I served as chairman, we had plans to raise the proportion of foreign alternative investments to some 20 percent of the total asset. However, the proportion of alternative investments at the NPS still stands at 10 percent. There are many problems to address, such as guaranteeing the independence of the fund management committee and the extension of alternative investments, but the latest reform proposal does not deal with the task of raising the investment return.”