Pension funds to reduce exposure to domestic stocks

The Korea Times

The Korea Times

Finance

Tue, October 3, 2023 | 07:01

Companies

Pension funds to reduce exposure to domestic stocks

Posted : 2022-06-06 16:47

Updated : 2022-06-06 16:58

The National Pension Service (NPS) is one of the country's three major funds that want to reduce their investments in domestic stocks over lower-than-expected returns. Korea Times file

By Yi Whan-woo

The nation's three major pension funds are geared toward lowering their investments in domestic stocks, over lower-than-expected investment returns on the paths to rebalancing their management portfolios.

Financial sources said Monday that the National Pension Service (NPS) plans to reduce its domestic stocks holdings from 17.5 percent of its total holdings in 2021 to 15 percent by 2025.

During the same time period, Teachers' Pension (TP) is considering reallocating the rate of domestic stocks in its total assets from 19.1 percent to 14.5 percent, while the Government Employees Pension Service (GEPS) pushes to reduce the rate from 18.5 percent to 10 percent.

For the NPS, the rate of return from domestic stocks was 6.73 percent last year, lower than the 29.48 percent from overseas stocks, 23.8 percent from alternative investments and 7.09 percent from overseas bonds.

For TP, domestic stocks brought a 5.7 percent rate of return compared to alternative investments outside Korea at 34.26 percent, overseas investments at 27.12 percent and domestic alternative investments at 15.8 percent.

GEPS had the highest rate of return from overseas stocks at 29.63 percent. The return rate stood at 19.37 percent for alternative investments and 5.76 percent for domestic stocks.

"Such unsatisfying investment returns certainly justify the pension funds' move to shift away from domestic stocks," an investment banking expert said. The expert noted that the funds are associated with public services and therefore have a heavier burden to raise profits by efficiently managing their respective assets.

The sources said that it would be best for pension funds to dump all domestic stocks and no longer make investments on the local stock market.

They said however that such a scenario would not be realistic because it would go against public sentiment.

For instance, the NPS faced criticism from stock investors here when it sold domestic stocks for 51 consecutive business days between December 2020 and March 2021.

"Given the circumstance, keeping the investment ratio at the minimum level will be the best possible option and that's what the pension funds are trying to do," another expert said.

yistory@koreatimes.co.kr