NPS to expand scope of its alternative assets

[Courtesy of National Pension Service]

South Korea’s National Pension Service (NPS) is poised to diversify its alternative investment portfolio in a move to boost returns and long-term profitability that will in turn ensure fund management stability.

According to financial industry sources on Wednesday, the NPS plans to introduce a reference portfolio in the alternative investment sector by May 2024. It is said that NPS will first expand the scope of its alternative investments and then complete the reference portfolio, which includes stocks and bonds.

The reference portfolio establishes sustainable target returns for pension funds, enabling the NPS to classify assets into risky and safe categories, then further tailor them to market conditions. Previously, the NPS managed assets across categories such as Korean and foreign stocks, bonds, and alternative investments, with preset target weights and benchmarks over a period of five years.

“The introduction of a benchmark portfolio means lowering the threshold for flexible investment decisions based on expert judgment,” Chung Sam-young, an alternative investment expert and professor at Yonsei University, said. Alternative investments currently account for up to 16 percent of the NPS portfolio, but this ratio could exceed 20 percent depending on expected returns and market dynamics.

Once the reference portfolio is introduced in 2024, it will allow flexible investment in a broader range of assets and provide diverse benchmarks for active investment starting from 2025 onwards. While Bitcoin investment is allowed in the reference portfolio, the NPS drew a line by maintaining its stance against cryptocurrencies as an investment option.

Meanwhile, the U.S. stock market surged to a record high on Tuesday (local time), driven by a robust performance by technology stocks. The S&P 500 index closed at 5175.27, up 1.12 percent from the previous trading day and surpassing the previous week‘s record of 5157.36 in just three trading sessions. In the Korean stock market, foreign investors contributed to an uptrend, with purchases worth 335.3 billion won ($254.6 billion) leading to a 0.44 percent rise in the Kospi index, which closed at 2693.57 on Wednesday.