Korea's national pension fund adopts new porfolio system to enhance investment flexibility
With 1,200 trillion won ($820 billion) in assets under management, South Korea's National Pension Service plans to intensify its focus on global and alternative investments to drive higher returns. The newly adopted "reference portfolio" system is expected to accelerate this shift by increasing flexibility in asset allocation.
"The NPS is steadily increasing its allocation to global and alternative investments to generate long-term, stable returns," said Seo Won-joo, NPS' chief investment officer, during a press gathering Tuesday. “To further enhance asset diversification, we introduced the 'reference portfolio' starting this year.”
NPS has seen its global and alternative investments drive overall return growth.
Last year, the fund posted a record 15 percent return, primarily fueled by its global investments. Global stocks led with a 34 percent return, followed by global bonds and alternative investments at around 17 percent each.
The fund's returns have steadily increased, from 4.5 percent in 2015 to 10.7 percent in 2019, reaching 15 percent in 2024 -- a level that places NPS, the world's third-largest public pension fund, in the top tier along with the Government Pension Fund of Norway and the Netherlands' ABP. The fund's total assets reached 1,212.9 trillion won, up 17 percent on-year.
The fund attributed this improvement to its strategy of expanding investments in global, alternative and higher-risk assets. In 2024, global stocks accounted for the largest portion of NPS' asset allocation, making up 35.5 percent — up from 30.9 percent the previous year and 23.1 percent in 2020. With an additional 7.3 percent invested in global bonds, NPS' total global investments reached nearly 43 percent in 2024.
During the same period, the fund's investment in domestic stocks has decreased, down from 21.2 percent in 2020 to 11.5 percent in 2024.
NPS plans to further increase its stock allocation to 55 percent, focusing on global stocks, by 2029, and raise its overall global assets to 60 percent by 2028.
Another priority is boosting high-risk asset allocation. To achieve this, the "reference portfolio" system, a new long-term asset allocation framework, was introduced this year.
“The new system is designed to enable the swift integration of diverse financial products emerging in the rapidly changing market,” explained Seo.
Until last year, NPS allocated assets based on predefined categories with a five-year target ratio, reviewed annually, making it difficult for the fund to respond quickly to changing market trends. The new system divides assets into risk and non-risk categories, aiming for 65 percent allocation to risk assets long term.
The new portfolio system will be implemented gradually to all sectors, starting with alternative assets this year.
As NPS’ role in annual shareholder meetings comes into focus, the fund also outlined its voting guidelines.
According to Yi Dong-sub, head of global responsible investment and governance at NPS, the fund's basic stance is to support board decisions, reflecting respect for shareholders who elected the directors. However, if a proposal risks harming shareholder value or the fund’s interests, NPS will oppose it.
“This approach is based on relevant laws and guidelines,” Yi stated. “Our objective is to achieve long-term, stable returns — not to pressure companies or pursue social justice. The sole focus is on enhancing the NPS’ long-term profitability, as clearly stipulated by law.”
For the past eight years, the NPS exercised voting rights on about 3,200 agenda items at shareholders meetings of approximately 780 companies annually. During the same period, its approval rates were around 82 percent and its opposition rates were 17 percent. Yi explained that the NPS refrains as much as possible from neutral votes and abstentions.
Yi noted that the high stakes held by controlling shareholders in local companies often allow them to dominate voting outcomes, underscoring the importance of the NPS’ voting power, regardless of its stake size.
"Exercising voting rights is a fundamental responsibility of a shareholder," Yi said. "We are witnessing companies establish collaborative relationships with us and making efforts to integrate our decisions into their management."
By Choi Ji-won (jwc@heraldcorp.com)
