Last Year Double-Digit Returns for Pension Funds and Gongjehoe... This Year 'Not So Sure'

Increased Volatility Due to US Early Tightening and Ukraine Situation
Gyoyukwon Gongjehoe and Sahak Yeongeum Achieved 11-12% Returns Last Year
Notable Performance in Overseas Stocks and Alternative Investments
Plan to Focus on Yield Protection Amid US Tightening
Will Expand Alternative Investments and IPO Funds

[Asia Economy Reporter Ji-hwan Park] Major pension funds and mutual aid associations, which are key players in the domestic capital market, posted double-digit or near double-digit returns last year. Alongside strong overseas stock investments, the recovery of losses in alternative investment assets such as real estate and infrastructure caused by COVID-19 boosted overall returns. However, this year, with the early tightening moves by the U.S. Federal Reserve (Fed) and the overlapping geopolitical risks between Russia and Ukraine, financial market volatility is expected to increase, making it challenging to defend returns.

According to the investment banking (IB) industry on the 17th, the Teachers' Mutual Aid Association recorded an investment asset return of 11.3% last year, up 1.3 percentage points from 10.0% a year earlier. During the same period, the Private School Teachers' Pension Fund achieved a fund management return of 11.95%, marking three consecutive years of returns in the 11% range. The Government Employees Pension Service's long-term financial asset management return last year was 9.6%, exceeding 9% for three consecutive years. The Korea Scientists and Engineers Mutual Aid Association also reportedly achieved a management return in the high 7% range, significantly surpassing its initial target return of 4.75%. The National Pension Service, a representative domestic pension fund, recorded a provisional overall return of 8.13% as of the end of November last year.

These pension funds and mutual aid associations mainly posted strong returns in overseas stocks and alternative investments. Last year, the domestic KOSPI index rose by only 3.63%, but the U.S. Morgan Stanley Capital International (MSCI) World Index increased by nearly 20%. During this period, the won-dollar exchange rate rose by 8.63%, and considering the exchange rate effect, market returns reached about 30%. A fund management official from a pension fund said, "In the overseas alternative investment sector, real estate and infrastructure assets suffered significant valuation losses due to the COVID-19 pandemic in 2020," adding, "Last year marked a recovery phase, with the valuation of marketable assets rising sharply." He further analyzed, "In the domestic alternative investment sector, the real estate market conditions were very favorable, and high capital gains occurred in the mergers and acquisitions (M&A) market through private equity (PE) and venture capital (VC) investments."

This year, the situation has unfolded in the opposite direction from last year since the beginning of the year. Experts in fund management commonly agree that with the U.S. abruptly shifting from an expansionary liquidity policy to tightening, it will be a year in which asset market bubbles deflate. In particular, as interest rate volatility increases, the general consensus is to adopt strategies that minimize risk rather than aggressive management. Major players have suggested private equity (PE), public offering fund investments, and expanded VC investments as alternatives in a highly volatile market. They also plan to increase bond-like investments such as overseas real estate alternative investments that can achieve stable returns.

A senior official in the asset management industry evaluated, "Existing stock investments reflect daily trading prices, but investments through PE or VC are not immediately reflected in market prices and are only evaluated at fair value (FV) once or twice a year, so market conditions are not instantly reflected in management returns," adding, "It is a good alternative to hedge market risks in a phase of increasing volatility."