National Pension Service sees losses mount as Korean stocks plunge

The National Pension Service (NPS) is facing growing scrutiny over its investment decisions as a sharp slump in the local stock market raises concerns about mounting valuation losses at the public pension fund.

The main opposition People Power Party (PPP) demanded a parliamentary investigation into whether political considerations played a role in the fund’s decision-making. NPS Chairman Kim Sung-joo denied any political motivation, saying the fund management committee makes decisions through a democratic consensus process.

According to financial data provider FnGuide, the estimated value of the NPS’ stakes in 287 listed companies stood at 333.53 trillion won ($249 billion) last Thursday, down from 515.93 trillion won at the end of June. The figures cover companies in which the pension fund disclosed holdings of at least 5 percent.

The decline wiped 182.4 trillion won, or 35.3 percent, off those holdings in just three and a half months. It marked the first quarterly decline since the fourth quarter of 2024, following six consecutive quarters of gains, with the valuation losses estimated to be the largest on record.

Separate figures provided by the NPS to lawmakers put the fund’s total asset value at 1,684.2 trillion won at the end of July, down 181.4 trillion won from 1,865.6 trillion won a month earlier.

About 125 trillion won of that decline reflected a reduction in cumulative gains on Korean stocks. Opposition lawmakers said the overall decline was equivalent to about 8.3 million won per pension subscriber.

The KOSPI’s slide in recent months was a major factor behind the losses.

KOSPI touched 9,000 in June before plunging to around 6,600 by the end of July. After further fluctuations, the index fell below 6,000 on Thursday, raising concerns that the value of the fund’s holdings could fall further.

The decline reflects a fall in the market value of the fund’s holdings rather than realized losses from stock sales. However, the figures have come under renewed scrutiny as the sell-off deepens, with critics questioning whether the NPS’s investment strategy left it overly exposed to domestic equities.

The NPS fund management committee temporarily suspended domestic equity rebalancing on Jan. 26, then raised its target allocation for domestic stocks from 14.9 percent to 20.8 percent on May 28, ahead of the June local elections.

Rebalancing refers to adjusting a portfolio by buying or selling assets when their weight moves outside a predefined range around a target allocation. By trimming stock holdings after a sharp rally, the fund can preserve liquidity to buy more shares during a downturn.

Criticism of the rebalancing suspension has intensified, particularly as the NPS was a net seller when KOSPI was trading 20 to 30 percent below its peak and has made only limited purchases during the latest sell-off. Critics say this has weakened its role as a market stabilizer and runs counter to its investment principle of buying low and selling high.

Rep. Lim I-ja of the PPP accused the government of intervening to change the fund’s asset allocation rules to prop up the stock market ahead of the elections.

"The government deferred the NPS portfolio rebalancing in January, then sharply raised the upper limit for domestic stock holdings just ahead of the local elections," she said.

As of the end of July, domestic stocks accounted for 24.9 percent of the NPS portfolio, above its target allocation, Lim said.

"If it cuts its domestic stock exposure now, it could put further downward pressure on the KOSPI. But if it maintains the current allocation, the risk of further losses to the fund grows," she said. "Had the NPS rebalanced earlier, it would at least have had the cash to buy stocks at lower prices during the current downturn."

In response to growing criticism from opposition lawmakers, the pension operator defended its decision, saying it was intended to limit market disruption and protect the fund's long-term returns.

NPS Chairman Kim Sung-joo said during a parliamentary audit Wednesday that the decision to postpone rebalancing was based on analysts' positive outlook for the Korean stock market at the time.

"If rebalancing had not been suspended and we had followed the original rules, we would have had to sell more than 800 billion won worth of stocks every day, accounting for over 10 percent of total KOSPI trading value," Kim said. "That would have had a tremendous impact on the market."