National Pension Service "Expanding Direct Overseas Investment Management... Increasing Share to 50%" (Comprehensive)

Targeting 55% Overseas Investment Ratio in 2025
Expanding Direct Management of Overseas Assets and Introducing Smart Beta Strategy

[Asia Economy Reporter Minji Lee] The National Pension Fund Management Committee (Fund Committee) plans to increase the proportion of overseas investments to 50% by 2024 to boost returns.

At the '8th National Pension Fund Management Committee' held on the 31st at The Plaza Hotel in Seoul, the Fund Committee received reports on the 'Comprehensive Overseas Investment Plan' and the 'Annual Report on National Pension Fund Fiduciary Responsibility Activities,' and deliberated and approved amendments to the fund management guidelines to expand the annual disclosure of alternative investments.

[Image source=Yonhap News]

On the day, Park Neung-hoo, Minister of Health and Welfare and Chairperson of the National Pension Fund Management Committee, stated, "With the fund management scale approaching 1,000 trillion won, it is inevitable to expand overseas investments to overcome the limitations of domestic investments, diversify investment risks, and minimize domestic market shocks caused by asset sales." He added, "The next 10 years will be a growth period for the fund, with income exceeding expenditures, so we will enhance returns through overseas investments to stabilize finances." Over the past five years, the returns on domestic and overseas investments were 3.69% and 10.6%, respectively, showing that overseas investment performance was more than twice as high as domestic.

The comprehensive overseas investment plan was prepared through the 'Comprehensive Overseas Investment Plan Task Force,' led by private experts since October last year, to efficiently achieve the targeted overseas investment ratio. Previously, the Fund Committee announced plans to increase the overseas investment ratio to 50% by 2025 and 55% by 2027.

According to the comprehensive plan reported on the day, the Fund Management Headquarters plans to strengthen operational capabilities by expanding direct management of overseas stocks and bonds and introducing smart beta strategies to improve returns. Unlike traditional indices weighted by market capitalization, this method follows indices using factors such as value, momentum, and quality.

Overseas bonds will be divided into 'stable assets' and 'income assets' for investment. Stable assets will be managed mainly with advanced country government bonds and used to purchase undervalued assets by liquidating during financial crises. Income assets will include emerging market government bonds and high-yield bonds (BB- grade or higher) within 5% of the investment criteria to increase returns.

In the alternative investment sector, the proportion of office buildings in urban areas that can generate stable income will be increased to strengthen resilience against economic downturns. Additionally, the Fund plans to secure excellent investment opportunities through equity investments in global asset management firms and strategic partnerships with major pension funds.

As the scale of foreign exchange procurement will continue to expand due to the increase in overseas investments, the Fund will diversify procurement methods to reduce the National Pension Fund's impact on the domestic foreign exchange market and establish a stable procurement environment. Furthermore, to strengthen risk management, the risk management system will be reorganized. The Fund Committee will supplement the total risk management method by analyzing and managing risk factors and introduce a country-specific crisis index to proactively respond to crisis situations.

Chairperson Park emphasized, "To enhance the implementation of the comprehensive overseas investment plan, it is important to expand the functions of overseas offices and secure excellent personnel," adding, "We will actively support this at the government level in consultation with the Ministry of Strategy and Finance and related ministries."

Meanwhile, according to the annual report on fiduciary responsibility activities reported on the day, the Fund Committee exercised voting rights on 3,278 agenda items at 767 shareholders' meetings last year and opposed 625 of them. It was also reported that 236 dialogues with companies were conducted.

This content was produced with the assistance of AI translation services.