NPS to report negative return in asset management for Q1

[Photo by MK DB]

South Korea’s biggest institutional investor National Pension Service has performed poorly in the first quarter investment after placing nearly 90 percent of its assets in securities.

NPS, manager of world’s third largest asset of $800 billion due to confirm its first-quarter performance on Friday, is projected to report minus 2.66 percent in cumulative investment return for January-March period, with loss valued at 25.4 trillion won ($20 billion). The loss is tantamount to 10 months of pension payment to 5.92 million pensioners, according to industry sources on Wednesday..

It posted the worst return of -3.82 percent in January which slightly narrowed to -3.57 percent in February and then to -2.66 percent in March.

The pension fund manager delivered double-digit returns for three straight years until last year. It recorded 11.31 percent in return in 2019, 9.70 percent in 2020, and 10.77 percent in 2021, thanks to stock market boom across the world. Its gains from investment were massive at 73.4 trillion won in 2019, 72.1 trillion won in 2020, and 91.2 trillion won in 2021, which add up to 236 trillion won.

But fortune has reversed for NPS with 86 percent of its investment portfolio comprised of stocks and bonds at home and abroad.

Bond prices are falling as major central banks accelerate monetary tightening to contain runaway inflation, while stock markets slump on recession fears.

Since 2000, NPS yielded negative return only twice: a 400 billion won loss with -0.18 percent return in 2008 and 5.9 trillion won loss with -0.92 percent return in 2018. This year may be its third.

To improve the investment return at Korea’s biggest institutional investor, market experts have been advising to diversify its investment portfolio with expansion in alternative assets. NPS currently allocates about 13 percent of its fund to invest in alternative assets. As of the end of March, its alternative investment delivered a 2.8 trillion won profit with a 2.37 percent return rate, the only gainer among its investments.

Its foreign peers have been shifting to alternative products. According to Global SWF, Netherlands-based pensions asset manager APG has 21 percent of its assets invested in alternative category. Canada Pension Plan, managing about a half the asset versus Korea’s NPS, has invested 52 percent in alternative assets such as real estate.

NPS’s imbalanced investment is also reflected in its skewed stance on individual stock investment. NPS along with Korea’s other public fund managers net purchased 4.06 trillion won worth of shares in LG Energy Solution, a leading electric vehicle battery maker, from Jan. 27 to May 25, 2022. The figure is more than three times greater than their total net purchase in the overall Kospi market during the same period, standing at 1.3 trillion won.

Such heavy purchases of LG Energy Solution led the Korean public fund managers to offload other large-cap stocks in the Kospi to meet their investment guideline to maintain a certain level of the Kospi 200 stocks in portfolio.

Public fund managers net sold 1.9 trillion won worth of Samsung Electronics shares, 541.3 billion won in Woori Financial Group, 366.5 billion won in SK hynix, 244.7 billion won in SK telecom, and 241.1 billion won in Naver over the same period.

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