National Pension Service Headquarters in Jeonju, North Jeolla Province. (Photo: NPS)

The National Pension Service Investment Management (NPSIM) announced that as of the end of 2019, its reserves climbed by 97.9 trillion won to 736.7 trillion won thanks to an increase in operating profits.

The NPSIM’s annual earning rate hit 11.3 percent (provisional), the highest since its establishment in November 1999.

In particular, the fund’s profit hit 73.44 trillion won (provisional) which was 1.5 times the annual premiums paid by the 22 million national pension members. The cumulative proceeds amounted to 367.5 trillion won which was equivalent to half of the NPF’s reserves.

The NPF’s ROI arrived at 11.3 percent in 2019, despite uncertainties such as trade disputes between the United States and China and Japanese restriction on key export items to Korea.

The result was attributable to cuts in benchmark interest rates and efforts to rev up economies by major countries including the United States and the bullish run of global stock markets powered by various economic indicators.

 
In particular, overseas stocks chalked up a price-earnings ratio of more than 30 percent due to rallies in international stock markets and exchange rates triggered by the conclusion of the first-phase trade agreement between the United States and China at the end of 2019.

Domestic stock prices also rose nearly 10 percent in anticipation of an earnings recovery by exporting companies such as chipmakers.

The bond market showed strong bond yields due to lower interest rates and quantitative easing policies in major countries, contributing to expanding the national pension’s valuation gains.

Alternative investments hit an earning rate of over nine percent, affected by valuation gains from a rise in the value of assets held by the NPS along with interest and dividend income.

The final evaluation of the performance of the National Pension Fund (NPF) will be finalized by the Fund Management Committee will determine the final evaluation of fund management performances after a review by the Risk Management and Performance Compensation Committees at the end of June.

On the other hand, at the end of 2019, the National Pension Fund eliminated long-standing concern over the high percentage of low-profitability assets as the proportion of bonds fell below half of all assets.

Since its establishment, the NPSIM has gradually promoted diversification of investment portfolios to enhance long-term performance and risk management.

Over the past decade, the proportion of bond investment shrank by 29.5 percentage points, while those of stock and alternative investments by 22.8 percentage points and 7.0 percentage points, respectively. As a result, the NPSIM showed stable results in the mid- to long-term, with an annual average cumulative return of 5.45 percent in the past five years.

The amount of the National Pension Fund is expected to reach 1,000 trillion won in 2024 and 1700 trillion won in 2041. The next 10 years will be the best decade the NPS will be able to actively manage the fund without any liquidity burden.

Accordingly, the National Pension Service is drawing up a general overseas investment plan to overcome the limitations of investment in the Korean market and to maximize profits from fund management by scaling up overseas investment with abundant investment opportunities.

For stable fund management, the NPS plans to strengthen the NPSIM by ramping up the number of investment professionals and improving infrastructure.