100 Trillion Won Gained in Two Months... Pension Funds Enjoy a 'Boom in Returns,' While Mutual Aid Associations Face a 'Capital Drought' Amid Market Rally

Pension Funds Hit Jackpot with High Proportion of Domestic Stocks

Mutual Aid Associations Struggle with Member Fund Outflows

Concerns Grow over Rebalancing and Pressure to Scale Back Investments

Yonhap News Agency

As the KOSPI continues its record-breaking rally, major domestic institutional investors are experiencing mixed fortunes. Pension funds with a high proportion of domestic equities have already posted strong returns, benefiting from the stock market surge. In contrast, mutual aid associations are facing growing pressure from capital outflows as their members’ demand for stock investment increases. Some mutual aid associations are even considering adjusting their alternative investment plans for the second half of the year.

According to the financial investment industry on May 8, the National Pension Service’s (NPS) domestic equity return stood at 49.82% as of the end of February. Compared to other asset classes at that time—overseas equities at 3.27%, domestic bonds at -0.23%, overseas bonds at 0.91%, and alternative investments at 0.18%—the performance was overwhelming.

Given that the stock market has risen further since then, it is highly likely that the NPS’s domestic equity return has already well exceeded 50%. On the previous day, the KOSPI hit an intraday high of 7,531.88, setting a new record. This is more than a 20% increase from the closing price of 6,244.13 at the end of February.

The overall return based on total assets under management is also estimated to have risen sharply. As of the end of February, the NPS’s domestic equity valuation accounted for 24.5% of its total portfolio. At that time, the NPS’s total assets under management amounted to 1,610.434 trillion won. On May 6, Lee Seuran, Vice Minister of Health and Welfare, mentioned at an event that the NPS’s assets under management would surpass 1,700 trillion won that day. Thanks to the robust stock market, assets under management have increased by about 100 trillion won in just over two months. The Teachers’ Pension and Government Employees Pension Service, which each have around 15% allocated to domestic equities, are also believed to have benefited significantly from the KOSPI’s rise.

However, there is a view within the industry that it is difficult to unconditionally welcome the sharp rise in the stock market. For pension funds, selling equities during a market boom is necessary to grow the overall asset size and maintain portfolio diversification. However, selling domestic equities in the current climate could be perceived as signaling a market peak. This would contradict the government’s policy of supporting the stock market and could attract public criticism. On the other hand, if they miss the right timing to rebalance assets, a market slowdown could result in both falling returns and the risk of pension depletion. This is why some believe that their room to maneuver has actually narrowed.

In contrast, mutual aid associations—where member capital can flow in and out relatively freely—are under more direct pressure. As individual investors’ interest in stocks grows, funds that had stayed in mutual aid association products for stable returns are rapidly flowing out.

Some mutual aid associations are trying to stem the outflow by offering special high-interest products, but this is considered insufficient to curb the stock investment frenzy. As a result, there are growing calls to completely overhaul second-half investment execution plans.

A senior official at one mutual aid association commented, “At this rate, we may not even reach half of the capital inflows we had expected for this year,” adding, “If things continue as they are, we may have to postpone all of our alternative investment plans for the second half, including private equity funds (PEF) and venture capital (VC).”

Another senior official at a mutual aid association explained, “We are considering maintaining the number of investments but reducing the investment amount per deal,” and added, “We are also conducting risk assessments on our existing investment projects.”

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