NPS to cut global stocks under GP management, up its direct control

South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, is set to slash its overseas stocks under global investment firms' management due to their poorer performance versus their benchmarks since 2021.

The pension fund, investing 367 trillion won ($264.2 billion) in overseas stocks as of the end of March, said on Tuesday that it has decided to reduce its commitment to global asset managers by up to 10% of its entire foreign equity and increase direct control.

NPS commits some 56% of its foreign stocks to global asset managers, while the range of commitment is 55-75%. The pension scheme will lower the range to 45-65%.

If it reduces the proportion of commitment to 45%, or the new lower limit, 41.5 trillion won worth of foreign equities will transfer from general partners' (GPs) management to NPS’ direct control.

NPS, managing 1103.5 trillion won in assets as of the end of the first quarter, has committed its overseas stock management to 41 global investment firms including BlackRock, J.P. Morgan, State Street Global Advisors, Lazard Asset Management, abrdn, Allianz Global Investors and Oaktree Capital Management.

The global firms’ management fee is more than double that of domestic asset managers, according to banking industry sources.

However, the foreign equities under global GPs' control have underperformed the benchmarks, partially caused by the heavily skewed portfolios toward Big Tech firms. 

Despite a 23.89% return on its entire overseas stock portfolio last year, the listed stocks under global investment firms’ management underperformed the benchmark by more than 1 percentage point, according to sources.

The overseas stocks also underperformed the benchmark by 0.61 and 1.59 percentage points in 2022 and 2021, respectively. The poorer performance for the three years indicates that NPS earned 5 trillion won less profit than the average market return, sources said.

Write to Byeong-Hwa Ryu at hwahwa@hankyung.com

Jihyun Kim edited this article.