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NPF Recorded Investment Returns of 11.3% and KRW 73 Trillions as of 2019

  • Date : 2020-02-28
  • Hit : 1521

NPF Recorded Investment Returns of 11.3% and KRW 73 Trillions as of 2019

- Total AUM jumped by around KRW 100 trillion the year earlier, the highest return since the foundation of the NPSIM -

□ The National Pension Service Investment Management (NPSIM), a fund management organization of the National Pension Service (NPS) led by acting CEO and Executive Director for Planning Jung-Bae Park, announced that the National Pension Fund (NPF) has reached KRW 736.7 trillion in the Reserve Fund or the total asset under management as of the end of 2019, an increase of KRW 97.9 trillion from the previous year, with a dramatic growth of investment income.

○ The NPF has hit the highest record of a preliminary of 11.3% in annual investment return since the foundation of the NPSIM in November, 1999.

* Since the foundation of the NPSIM, the NPF has delivered a double-digit return several times, with 10.39% in 2009, 10.37% in 2010 and most recently 11.31% in 2019.
□ In particular, the investment income earned throughout the last year was reported at a preliminary of KRW 73.4 trillion, one and half times larger than the total contributions collected from 22 million members of the National Pension Scheme in a single year.

* The annual investment income of 2019 was 1.5 times larger than the annual contributions of KRW 47.8 trillion, 3.2 times larger than the annual benefits of KRW 22.8 trillion and 1.6 times larger than the national trade surplus of KRW 45.3 trillion.

○ Accordingly, the cumulative investment income came to KRW 367.5 trillion, which accounted for the half of the total AUM.

* The cumulative investment income represented 49.9% of the total AUM (KRW 736.7 trillion) and 38.9% of the entire fund comprising contributions and investment income (KRW 945.1 trillion) as of the end of 2019.

<NPF Investment Income in 2019>

Contributions

Benefits

National Trade Surplus

1.5x

3.2x

1.6x


□ With mounting uncertainties over the U.S.-China trade tension and Japan’s trade restrictions on South Korea, the NPF delivered an annual investment return of 11.3% in 2019.

○ It was largely because a policy interest rate cut and a set of economic stimulus measures taken by the United States and other countries and improved economic indicators led to global stock markets staying strong.

○ The financial investment reported an annual return of 11.33%, with 12.58% for Domestic Equity, 30.63% for Global Equity, 3.61% for Domestic Fixed Income, 11.85% for Global Fixed Income and 9.62% for Alternative Investment.

<Investment Return on NPF Financial Investment>

Type

Total

Domestic Equity

Global Equity

Domestic Fixed Income

Global Fixed Income

Alternatives

Return (%)

11.33%

12.58%

30.63%

3.61%

11.85%

9.62%

Market Value

(KRW in tln)

736.1

132.3

166.5

322.2

30.8

84.3

Weight

100%

18.0%

22.6%

43.8%

4.2%

11.5%

□ More importantly, the global equity investment generated its annual return of over 30%, driven by the surge in the global stock markets from the signing of the US-China phase one trade deal as well as the effect of currency movement.

○ The domestic equity investment also performed fairly well to drive the total return into a double-digit return last year, as the domestic stock market surged nearly 10% in a high expectation that local export companies will recover earnings, including in the semiconductor industry.

* The global stock market (MSCI ACWI ex-Korea, USD) rose 26.83%, while the domestic stock market (KOSPI) rose 7.67%.
* The KRW-USD exchange rate increased 3.55%.

○ The fixed income investment became another contributor to scaling up the NPF in market values with a robust bond market supported by a lower interest rate environment stemming from policy interest rate cut and quantitative policies at home and abroad.

* US Treasuries (10-year) fell 76.7 bps, while Korean Treasuries (3-year) fell 46.8 bps.

○ The alternative investment delivered an annual return of 9% with interest and dividend gains and increased valuations of holdings and properties.

○ The final performance evaluation result on fund management will be determined by the Fund Management Committee around this June upon risk management review and the assessment by the Special Committee on Performance Evaluation and Compensation.

□ Meanwhile, the weight of fixed income was lowered to less than half of the entire assets at the end of last year, mitigating concern over the concentration on low-return assets.

○ Since the foundation, the NPSIM has sought after a gradual investment portfolio diversification to improve long-term return and facilitate risk management.

○ Over the last decade, the weight of fixed income was reduced 29.5%p, while those of equity and alternative investment increased 22.8%p and 7.0%p, respectively.

○ As a result, the NPF has demonstrated a stable performance in the mid to long term so far, with an annualized average return since its inception in 1988 of 5.86%, a 5-year return of 5.45% and a 3-year return of 5.87%.


<NPF Asset Allocation Trend>

Type

2009

2011

2014

2018

2019

Fixed Income

77.5%

68.6%

60.0%

53.2%

48.0%

Equity

17.8%

23.5%

29.9%

34.8%

40.6%

Alternatives

4.5%

7.8%

9.9%

12.0%

11.5%

□ The pension fund size is expected to reach KRW 1,000 trillion in 2024 and KRW 1,700 trillion in 2041. It means that the NPF will enjoy at least a 10-year period of ‘Golden Time’ where aggressive investment is allowed without worrying about liquidity pressure.

○ Against this background, the NPSIM is developing a ‘general plan for global investment’ that would maximize returns by overcoming limitations of small local market and promoting overseas investments teeming with plenty of opportunities.

○ In pursuit of stable fund management, the NPSIM will also exert the utmost effort to advance its abilities and competencies through additional hiring of investment talents and infrastructure enhancement.

□ Meanwhile, the NPSIM is acting swiftly against the recent COVID-19 outbreak.

○ In accordance with the pre-developed Business Continuity Plan (BCP), the employees were placed separatedly in selected offices in four different cities and counties (Jeonju HQ, two Seoul offices and Daejeon office).


○ The use of an online communication system is being promoted to communicate with outside entities, such as video conference, while the entry of outsiders was restricted.

○ In general, a proactive approach is being taken to contain the impact of the coronavirus on business by providing a mandatory health check on overseas travelers, closing an in-house cafe and banning the entry of outsiders.

○ As a long-term investor, the NPF is managed according to its investment principles with a long investment horizon, within permissible ranges of asset valuation changes and loss risk.

○ Going forward, the NPS will continue to focus on improving investment performance over a long run with a goal of promoting the stability of public livelihood.

<Appendix> Overview of National Pension Fund as of the end of 2019


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