South Korea's pension fund aims for 65% allocation to high-risk assets

South Korea's NPS evolves: South Korea's National Pension Service (NPS), overseeing the world's third-largest public pension fund, has set a new course for its long-term asset allocation strategy. The Ministry of Welfare announced on Thursday that the NPS aims to allocate 65 per cent of its assets to risky ventures under these fresh guidelines.

In a statement following a review of the fund's investment strategy, the ministry highlighted the intent to maintain a 65 per cent allocation to risky assets in its strategic asset allocations. The aim is to swiftly diversify investments into various alternative assets within this ratio to bolster investment returns.

Longevity, yield focus

The primary objective for the NPS is to enhance investment yields and extend the lifespan of the fund, which is currently projected to be depleted by 2055 due to the rapid ageing of the population.

This 65 per cent target comes as the board overseeing the fund's investment policy decided to introduce a "reference portfolio" approach, allowing for flexible asset allocations within a long-term target ratio.

Previously, the NPS allocated assets based on five-year target ratios for each asset class, which were reviewed annually. However, the Ministry recognised that this mechanism limited the fund's investment scope, hindering its ability to seize new investment opportunities in evolving markets.

Global expansion targets

As of February's end, the NPS managed a total of 1,069.7 trillion won ($777.68 billion) in assets, with stocks and alternative investments constituting 46.7 per cent and 16.0 per cent, respectively. The NPS plans to further boost investments overseas and in non-traditional assets to pursue higher returns.

(With Reuters Inputs)