Korean pension funds log above-benchmark H1 returns
Jong-woo Kim and Jun-ho Cha
Aug 09, 2021 (Gmt+09:00)
South Korea's major pension funds have posted robust investment returns above their benchmarks in the first half of this year, driven by double-digit returns from stock markets.
From alternative investments, both the Korean Teachers' Credit Union (KTCU) and the Teachers' Pension enjoyed about 10% returns on average, reflecting the KTCU's lucrative exits from two overseas investments, according to their public disclosures. That compared with the 3.54% return for the National Pension Service's (NPS) alternatives assets in the January-May period of this year.
But most of the country's retirement funds suffered negative returns from domestic fixed-income securities, which account for 30-40% of their portfolios, after bond yields spiked in May and June on growing market talk of upward inflationary pressures and interest rate hikes.
The NPS, with 892 trillion won ($780 billion) in assets under management, achieved a 5.82% return on investments on average as of the end of May of this year. Both domestic and overseas equities, which make up 45.6% of its portfolio, produced average returns of 12.98% and 14.34%, respectively, beating their benchmarks by one to three percentage points during the period.
KTCU, TEACHERS' PENSION, GEPS
The KTCU's first-half return of 9.1% is higher than the 5.4% return it posted in the year-earlier period. On top of the 14.3% return from its equities investments both at home and abroad, alternatives generated a 10.1% return on average.
For the entire year of this year, it is targeting a 3.7% return on average, below last year's 10% which marked its best investment return in 11 years.
The Teachers' Pension, with 23 trillion won in assets under management, posted a cumulative return of 8.22%, a threefold rise from the 2.49% in the year-earlier period. Both domestic and overseas stocks, which take up 34% of its total investments, delivered double-digit returns. Alternatives, with a proportion of 20% of the portfolio, produced a 9.19% return.
For the Government Employees Pension Service (GEPS), equities returned 15.5% in the first half of this year, with alternatives posting a 7.5% return. On average, its total financial assets worth 8.2 trillion won, including short-term reserves, yielded a 5.6% return on investments in the January-June period.
FIXED INCOME SECURITIES
For NPS, GEPS and Teachers' Pension, the average returns from domestic fixed-income securities ranged from minus 1.1% to minus 1.94% for the first six months to June.
Unlike them, the KTCU reported a positive return of 3% from domestic fixed-income investments, beating minus 2.4% of its benchmark. Fixed income takes up 17.2% of the KTCU's 47 trillion won in assets under management as of the end of June.
Write to Jong-woo Kim and Jun-ho Cha at jongwoo@hankyung.com Yeonhee Kim edited this article.