By Yi Whan-woo
The nation’s pension service funds are rushing to expand their investments abroad in a bid to diversify their investment portfolios and increase returns.
The National Pension Service (NPS), Korean Teachers’ Credit Union (KTCU), Military Mutual Aid Association (MMAA) and Police Mutual Aid Association (PMAA) manage post-retirement funds for the general public, teachers, military service members and police officers, respectively.
They have either begun investing overseas or expanded purchase of stocks, bonds and real estate outside the country this year. They claim their strategies have been prompted by the lower-than-expected yield from their domestic investments amid low-interest rates.
NPS, under the Ministry of Health and Welfare, said Monday it plans to spend 10.5 percent or 50.55 trillion won of its assets worth 481.86 trillion won ($449.08 billion) to buy stocks in overseas markets this year.
NPS spent 9.3 percent or 40.5 trillion won of its assets worth 435.56 trillion won to buy overseas stocks in 2013.
The national pension fund for the elderly said its bond purchases abroad will remain at 4 percent of its assets for two consecutive years since 2013.
It also said it will spend 4.3 percent of its assets to buy real estate here and abroad, although it did not specify the proportion. In 2013, it spent 4 percent of its assets on real estate.
On the other hand, the NPS will decrease its overall investment in the domestic market to 74.2 percent this year, down from 75.7 percent a year ago and 77.6 percent in 2012.
“It is true that low interest rates here bring less-than-expected profits, although we can’t give details,” an NPS spokeswoman said.
Ha Ju-hean, a spokesman for MMAA, echoed a similar view.
“The average return for our members has been 5.4 percent annually,” he said. “In contrast, the profit rate from stock investments was less than 5 percent last year. Moreover, the annual average bond rate stands at 2 percent.”
He said some 60 percent of MMAA’s assets planned for investment in other than stocks and bonds will be spent to purchase properties overseas. This rate is up from 50 percent in 2013, he added.
“Diversifying our business portfolio is essential considering the current circumstances, and we’ll enhance our strategies as we go forward.”
PMAA also said it launched its overseas investment team in mid-2013.
“Our asset management portfolio is mainly divided into investments in stocks, bonds and properties, and we have not kept a separate record of our overseas investment,” a PMAA official said. “However, we’ll expand our investment abroad in the future.”
KTCU launched a unit for overseas investment today. It also said it has been working on a separate project to own shares of One Channel Center, an office building in Boston.
An economist said such overseas investment expansion could trigger excessive competition among Korea’s pension service groups while causing volatility in the local stock market.
“It’s possible that severe competition centering on specific properties abroad could raise their sales price,” Park Sang-hyun, a senior research fellow at HI Investment & Securities said.
“The pension service groups have been big shareholders of the domestic stock market, and their withdrawal could result in the fall of stock prices.”