National Pension Service stock holdings, profits surge amid KOSPI rally

National Pension Service headquarters in Jeonju, North Jeolla Province / Courtesy of NPS

Over half of the National Pension Service (NPS) assets are being held in stocks in Korean and offshore markets, with the fund’s assets under management surging 20 percent to over 1,400 trillion won ($980 billion) in just 10 months, market watchers said Monday.

This is the first time in history that NPS equity allocation has surpassed the 50 percent mark, a once-criticized profit-driven strategy diversifying away from traditionally conservative approaches, given the fund’s depletion concerns due to Korea’s super-aging and world’s lowest birthrates.

Underpinning the past 10 months of explosive profit was the bullish rally of the country’s KOSPI. The benchmark continues to break all-time highs, driven by semiconductor shares – SK hynix and Samsung Electronics.

The recent visit by Nvidia CEO Jensen Huang to Korea for the Asia-Pacific Economic Cooperation (APEC) CEO Summit further propelled shares related to the artificial intelligence (AI) sector. SK hynix shares rose by an intraday high of over 10 percent, while Samsung rose over 3 percent mid-session on Monday.

According to the public pension fund, its assets stood at 1,269 trillion as of June, and over half, or 635 trillion, were invested in equities.

This is a major shift from a decade ago, when bonds made up more than half, or 56.6 percent of the NPS portfolio. At the time, equities accounted for 32.2 percent. The June figure showed bonds constituted only around 33 percent of the total.

Of its total equity holdings, Korean stocks constituted 14.9 percent, or 189 trillion won, while offshore stocks accounted for 35.2 percent, or 446 trillion won.

The diversification seeks to manage risk, given Korea’s relatively small and volatile market where NPS funds of over 1,200 trillion won could wield a sizable influence in the domestic equity market.

More than one-third of the total is invested in advanced financial markets, including New York and London.

Internal projections within the fund suggest that if the KOSPI rally continues through December, the pension fund’s annual investment return could reach as high as 25 percent, a level unseen in recent years and well above its long-term target range.

Many say the over-50 percent stock portfolio indicates how a public pension fund can be managed in the context of Korea’s demographic challenge.

Higher investment returns can significantly delay the depletion of the fund. According to projections from the health ministry, the fund was expected to be depleted by 2057 under a scenario that assumed an average annual return of 4.5 percent.

However, a recent report by the National Assembly Budget Office found that if the return rate is maintained at 6.5 percent, the depletion would be pushed back to 2090.