By Kang Seung-woo
The state-run pension fund’s overseas investments this year have soared nearly nine times since the global financial crisis, in efforts to diversify its asset portfolio.
But observers are concerned over its active drive amid the current financial turmoil, sparked by the Greek debt problems.
According to industry data, the National Pension Service (NPS) invested 5 trillion won ($4.26 billion) in overseas properties as of the end of the first half of 2011, up from 564.2 billion at the end of 2008, when the bankruptcy of Lehman Brothers hit the global economy hard. Since then, the NPS’s investment in foreign real estate has been on the rise, as it spent 2.44 trillion won in 2009 and 4.10 trillion won in 2010.
The public pension fund owns the Sony Center in Berlin, the HSBC headquarters building in London’s Canary Wharf, KDX Toyosu Grandsquare in Tokyo and Aurora Place in Sydney. Recently, it purchased a 49 percent stake in the Helmsley Building in Manhattan.
The NPS, headed by Chairman Jun Kwang-woo, is the world’s fourth-largest investor with 343 trillion won in assets as of the end of July and it has shown a bigger interest in alternative investment to boost the portion to more than 10 percent of its overall assets within five years.
The NPS has also been busy pumping money into foreign stocks and bonds, the data revealed, in which the fund invested 13.31 trillion won and 18.44 trillion won respectively as of the end of July, up from 8.64 trillion won and 9.91 trillion won in 2008.
The NPS said that in order to diversify its investment portfolio, it has increased its overseas assets including real estate and stocks.
“Recently, the NPS did not have much joy with its investment in overseas properties amid the ongoing global financial woes. Along with profitability, it needs to secure stability in its investments,” said Lee Chang-seon, a senior economist of LG Economic Research Institute. “It is desirable to diversify its overseas portfolio, but the NPS is also required to thoroughly study risk factors in advance.”
As Lee said, the NPS’s recent investments abroad did not pay dividends.
According to the NPS, its annual earnings rate from overseas properties over the past four year averaged a mere 1.79 percent, or 83.3 billion won.
Making the situation worse, the profitability of its investment in foreign stocks posted minus 10.65 percent for the last three years.
Observers warn that aggressive investment amid increasing financial uncertainties could result in huge losses, like those investors from major economies who suffered during the 2008 financial malaise.
The California Public Employees’ Retirement System (CalPERS) saw the value of its assets fall 23.4 percent along with a 35.8 percent decline from the real estate sector in 2008, and the Canada Pension Plan (CPP) was also hit hard after increasing investment in risky assets.
“The NPS needs to refrain from active investment in that the pension will be used for people’s post-retirement life,” Rep. Yang Seung-jo of the main opposition Democrat Party said during a parliamentary inspection of the NPS last week.
Lee also said, “The NPS needs to keep in mind what its core operation is.”
The NPS has also struggled in its domestic stock investment in the first half of this year.
It injected about 30 trillion won in equity investments in the January-to-June period, with its yield reaching 2.28 percent.
The number was lower than the KOSPI return of 2.42 percent in the cited span, marking the first time in the last three years that the NPS’s return fell short of market results.