What's driving up National Pension Service's investment returns?

US equities behind fund’s record return of 15% in 2024

By Jun Ji-hye

The National Pension Service’s (NPS) investment returns are estimated to have surpassed 15 percent in 2024, setting the stage for hitting a new all-time high for the second consecutive year, according to industry sources Monday.

The NPS has been recording solid returns since 2023 when it set the record of 13.59 percent.

The state pension operator said its fund management returns, including domestic and foreign stocks, bonds and alternative investments, were recorded at 12.57 percent as of November. The exact figure for 2024 is set to be disclosed on Feb. 28.

The primary driver of return growth was U.S. stock investments.

As of November, domestic stocks recorded a return of minus 4.94 percent, while foreign stocks posted a return of 29.72 percent. The return on foreign stocks improved from 26.52 percent in October, whereas the return on domestic stocks declined from minus 0.87 percent.

For 2024 as a whole, the NPS is expected to have recorded a return in the 30 percent range from foreign stock investments.

“Foreign stocks performed well due to expectations of U.S. interest rate cuts, a rally led by major tech stocks and the appreciation of the dollar against the won,” an NPS Investment Management official said.

The alternative investment sector is also expected to have seen its returns nearly double from 2023, reaching about 10 percent for 2024.

The NPS has been increasing its allocation to foreign stocks and alternative investments in recent years, as part of its efforts to improve profitability. It has also expanded its workforce by recruiting private-sector experts in these areas.

For 2024, the fund’s top decision-making body, the fund management committee chaired by the minister of health and welfare, set the foreign stock allocation at 33 percent — an increase of 2.7 percentage points from the previous year — and the alternative investment allocation at 14.2 percent, up by 0.4 percentage points.

The significant increase in returns from these segments is analyzed to have more than offset losses in domestic stocks, resulting in strong overall performance.

This year, the NPS’ target allocation for foreign stocks is set to rise from the previous 33 percent to 35.9 percent, while the target for domestic stocks will be reduced from 15.4 percent to 14.9 percent.

This decision has raised concerns that even the NPS is turning away from the domestic stock market. However, within the fund management committee, there is a consensus that increasing overseas investments is inevitable in the long run.

“As the national pension fund enters the 1,000 trillion won ($694 billion) range, expanding investments in the broader global financial market is essential to strengthen long-term returns and diversify risks, rather than relying on the relatively small domestic financial market,” a committee official said.