National Pension Service Delivers Robust Returns on 1,300 Trillion Won...A Surprise Player for Korea [Pension Funds & Mutual Aid In-Depth] ①

1,300 Trillion-Won ‘National Giant’ NPS
Steps In on the Currency Front
Contributing to Exchange Rate Stability Through FX Swaps
World’s Second-Largest Pension Fund... Scale as a Strategy
From ‘Safety’ to ‘Efficiency’... Pursuing Flexib

Editor's NotePension funds and mutual aid associations have long established themselves as core players in the capital market. Beyond their fundamental differences-pension funds focus on old-age security for citizens, while mutual aid associations aim to increase members' assets and expand welfare-they also diverge significantly in terms of asset size, investment strategy, and organizational structure. This article provides an in-depth analysis of pension funds and mutual aid associations, which serve as major sources of capital for key institutional investors both domestically and internationally.

At the end of last year, political instability caused by martial law led the won-dollar exchange rate to soar to 1,486 won. This was the highest level since the 2009 global financial crisis. In response to heightened volatility in the foreign exchange market, the Bank of Korea and the National Pension Service (NPS) increased the foreign exchange swap ceiling from 50 billion dollars to 65 billion dollars within six months. While foreign exchange swaps are typically macroeconomic stabilization tools used by the government or central bank, this time, the National Pension Service also stepped in. This demonstrated that the NPS is functioning as a pillar of the national economy, far beyond its role as a pension fund manager.

Assets Exceed 1,300 Trillion Won... More Than Half of Korea’s GDP

According to the National Pension Service, as of the end of August, the NPS managed a total of 1,322 trillion won in assets. This exceeds half of Korea’s nominal gross domestic product (GDP) of 2,556 trillion won last year. Even if you add up the market capitalization of the top 10 listed companies in Korea-including Samsung Electronics, SK Hynix, and LG Energy Solution-the total still falls short of the NPS’s assets by more than 100 billion won. The gap with the Teachers’ Pension, the country’s second-largest pension fund, is nearly twentyfold.

In the global pension fund market, the NPS also ranks among the very top. According to Global SWF, a global pension fund evaluation agency, the NPS is the world’s second-largest pension fund by assets under management, following Japan’s Government Pension Investment Fund (GPIF).

The NPS’s greatest distinguishing feature is that its sheer size is a strategy in itself. Even a 1-2% portfolio adjustment can shift tens of trillions of won, significantly impacting the market. However, such a massive scale is a double-edged sword. With assets exceeding 1,000 trillion won, short-term trading or market-timing strategies are not feasible. Due to a benchmark-centered management system, the NPS is inevitably focused on stable returns rather than excess profits. Non-financial risks, such as political intervention in appointments and intergenerational equity issues, are also increasing.

'Declaration of Increased Risk'... Raising Exposure to Risk Assets

In the past, the NPS pursued a conservative portfolio, but last year it announced a new asset allocation plan, increasing its risk asset ratio from 56% at the end of the previous year to 65%. By breaking down barriers between asset classes and adopting a flexible reference portfolio, the NPS simplified its allocation to 65% risk assets (equities and alternative investments) and 35% safe assets (bonds). This move was designed to address the risk of fund depletion due to low birth rates and an aging population. The judgment was that relying on ‘safety’ alone would no longer secure the future.

However, recent controversies over private equity fund (PEF) investment losses have put the NPS’s aggressive shift under scrutiny. During this year’s National Assembly audit, concerns were raised about a potential loss of around 900 billion won (on a fair value basis) from the NPS’s investment in the acquisition of Homeplus by MBK Partners, a PEF management company. Although MBK Partners has given up its general partner (GP) share and is making efforts, Kim Taehyun, Chairman of the National Pension Service, also acknowledged the possibility of losses at the National Assembly audit held on October 24. Nevertheless, the total principal invested by the NPS through two blind funds managed by MBK Partners was 334.7 billion won, while the total amount recovered was 774.1 billion won, meaning more than twice the principal has been recovered.

Last Year’s Returns Surpassed Global Peers... Debate Over Increasing Domestic Equities

Last year, the NPS achieved an overall investment return of 15.32%, its highest since 2000. The investment profit reached 15.97 trillion won, more than three times last year’s benefit payments of 4.4 trillion won. This marked a dramatic rebound from the －8.2% loss caused by the global financial market shock in 2022. The NPS outperformed major overseas pension funds, including Japan’s GPIF (14.2%), Canada Pension Plan Investment Board (CPP, 14.2%), and the California Public Employees’ Retirement System (CalPERS, 9.1%).

However, even these results have recently been overshadowed by political controversy. During this year’s National Assembly audit, ruling party lawmakers argued that the NPS should increase its allocation to domestic equities to revitalize the local stock market. In contrast, opposition lawmakers warned that the government should not intervene in pension fund management, emphasizing the need to safeguard the fund’s independence. The NPS now faces the dual demands of market stabilization and operational independence.

The possibility of fund depletion remains the most pressing concern for the public. As improving returns alone has its limits, there are growing calls for institutional reforms such as raising the contribution rate and restructuring the benefit system. The strategies adopted by this 1,300 trillion won giant will not only shape the direction of Korea’s capital market but also determine the security of citizens’ retirement in the years to come.