[In-Depth Look at Funds and Mutual Aid Associations]⑦A Crisis-Resistant Fund... The "Stability-Focused Defender" Police Mutual Aid Association

5% Return Amid Negative Results for Major Pension Funds in 2022
Alternative Investments and Bond Assets Used to Hedge Volatility
First Chairman from Constable Background Inaugurated
Key Tasks Remain, Including Appointment of CIO

Editor's NotePension funds and mutual aid associations have long established themselves as key players in the capital markets. Beyond their basic differences-pension funds aim to secure retirement for the public, while mutual aid associations focus on growing members' assets and expanding welfare-they also show distinct differences in 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 both domestic and international institutional investors.

2022 was a year of hardship for the global financial markets. Due to interest rate hikes by major central banks and a sharp decline in stock markets, most of Korea's major pension funds and mutual aid associations posted negative returns. In contrast, the Police Mutual Aid Association recorded a positive return of 5.0% that year. It distinguished itself by defending against losses when the market was highly volatile.

Jaram Building, Police Mutual Aid Association, Mapo-gu, Seoul. Photo by Yonhap News

The core operating principle of the Police Mutual Aid Association is "stability first." Its bylaws limit equity investments to 10%, maintaining a conservative asset allocation strategy by increasing the proportion of alternative investments and bonds. As a result, returns are somewhat lower, but the association has served as a shield during periods of market turmoil.

Assets Total KRW 6.6 Trillion... 12% Average Annual Growth Over the Past 5 Years

The Police Mutual Aid Association began as a foundation in 1989 and was formally established under the Police Mutual Aid Association Act in 1992. It manages retirement funds for approximately 135,000 members, including police officers and staff of police organizations. Thanks to steady growth, its total assets increased to KRW 6.5875 trillion as of the end of last year, making it the seventh largest among Korea's pension funds and mutual aid associations. The compound annual growth rate (CAGR) of assets over the past five years is 11.9%.

Financial soundness indicators are also favorable. The reserve ratio stood at 109.9% last year, and the association has posted a surplus for nine consecutive years. Net profit for last year was KRW 60.78 billion, more than double the previous year's KRW 25.18 billion. Member contributions increased from KRW 3.1 trillion in 2020 to KRW 4.94 trillion last year.

According to investment status data released by the association, the proportion of short-term funds soared from 0.4% at the end of 2022 to 17.3% at the end of last year. This indicates a sharp increase in funds held as cash rather than being invested.

5-Year Average Return of 5.4%... Prolonged Leadership Vacancy Remains a Concern

The average return over the past five years is 5.4%. Last year's return was 6.0%. While this is not as high as the Korea Teachers' Credit Union (10.7%), the Government Employees Pension Service (9.1%), or the Military Mutual Aid Association (7.2%), the Police Mutual Aid Association has the lowest volatility in returns.

This outcome is attributed to its conservative investment strategy focused on stability. In fact, as of last year, equities accounted for only 8.8% of the portfolio. Notably, in 2022, when most institutions posted negative returns, the association was the only one to maintain a positive 5%, proving its "crisis-resilient return structure."

Meanwhile, the prolonged leadership vacancy is cited as a risk. Since the resignation of former Chief Investment Officer Han Jongseok in October 2023, the CIO position has remained vacant for nearly two years. Key executive positions such as Chairman, Auditor, Managing Director, and Business Director have also at times remained unfilled. The process for selecting a CIO-including an open recruitment, election by the board of delegates, and approval by the Commissioner General of the National Police Agency-has caused delays in the decision.

However, signs of change have emerged since Lee Youngsang, former Commissioner of the Incheon Metropolitan Police Agency, took office as Chairman in April. He is the first chairman with a background as a police constable. In his inaugural address, Chairman Lee emphasized that protecting members' rights and improving welfare would be his top priorities. He also commended staff for their efforts in operating the association stably despite executive vacancies and a challenging economic environment. Since then, Chairman Lee has launched a task force to forecast future trends and identify new investment products, and has carried out large-scale promotions. The appointment of key executives, including the CIO, will also be finalized soon through discussions and approval by the National Police Agency.