the National Pension Fund has surpassed KRW 140 trillion in assets under management, with returns exceeding 20%. this was driven by investments in Samsung Electronics and SK Hynix semiconductors, and the fund's depletion is expected to be postponed.
table of Contents
- what happened to the 20% return on the national pension fund
- why did the National Pension perform so well?
- top investments held by the National Pension Fund
- impact on pension finances and the timing of depletion
national Pension Reaches 20% Return, What Happened
as of the end of October 2024, the National Pension Service's cumulative annualized return exceeded 20%. The National Pension Fund's assets under management, which stood at around KRW 1,200 trillion until last year, grew by more than KRW 200 trillion in 10 months, surpassing KRW 1,400 trillion.
this is an impressive performance compared to the world's major pension funds. the average annual return of major global pension funds is between 6-9%, and even in the best years, it has been around 14%. Compared to the 14% returns of public pension funds in Canada and Japan last year, the 20% returns of the National Pension Fund are among the best in the world.
why did national pension investments perform so well?
domestic equity investments returned 60 percent
the biggest driver of the surge in returns is the rise in domestic stock prices. the return on domestic stocks exceeded 60%, largely due to the surge in the stock prices of large semiconductor stocks such as Samsung Electronics and SK Hynix.
this is a result of the revival of the semiconductor industry and the surge in demand for artificial intelligence, which is exactly the right time for the National Pension Investment Strategy.
international stocks and bonds also outperformed
overseas equities returned about 20%, led by gains in U.S. technology stocks. Bonds also performed well, with bond prices rising on expectations of lower interest rates, while currency gains from a weaker Korean won also helped boost returns.
other asset classes, including alternative investments, also performed well.
outperforming the benchmark
when judging the investment performance of the National Pension Service, we consider the benchmark, which is a standardized return based on representative domestic and international indices such as the KOSPI and MSCI World Index. outperforming the benchmark means that we have recorded excess returns.
this year, the National Pension System's return in the 20s was more than 1 percentage point higher than the benchmark, demonstrating that it did not simply follow the market, but was driven by an active investment strategy.
top holdings of the National Pension Fund
samsung Electronics and SK Hynix are key
samsung Electronics and SK Hynix are the top two stocks held by the National Pension Service. these two stocks alone account for over 30% of the total domestic equity portfolio.
it's worth noting that the KPF has been a net seller of Samsung Electronics for the past five years, but this year it reversed course and made a net purchase of over KRW 1.4 trillion. This is the result of a bold revision of its investment strategy in response to the recovery of the semiconductor industry and the surge in demand for artificial intelligence.
semiconductor component material stocks
we also added stocks related to semiconductor components and materials, such as Comico, Solbrain, and ISC, to boost returns. This strategy maximized returns by investing in the entire value chain, not just finished product manufacturers.
financial stocks and platform stocks
kB Financial and Shinhan Holdings, which are held by the National Pension Service, posted strong returns as their share prices rose by 30 to 40 percentage points. the allocation to financial stocks also increased significantly.
we also added platform stocks such as Naver to the portfolio, and in the second half of the year, we added stocks related to defense and nuclear power such as Hanwha Aerospace and Doosan Energy.
impact on pension finances and time to exhaustion
funding depletion can be delayed by up to 33 years
higher national pension returns have a positive impact on pension finances. the average return on the National Insurance fund over the past 20 years is 6.27%, but if we assume an annualized return of 20% this year and recalculate the 20-year average return, it is 6.99%.
higher returns naturally slow down the point at which the fund is depleted. every five years, the government reviews the financial health of the National Insurance fund and sets an assumed rate of return, which currently assumes an average annual return of 4.5% and predicts that the fund will be fully funded in 2057.
the deficit could be delayed by 30 years
if investment returns were to rise to 6.5%, the fund could be depleted by 2090, about 33 years later. the deficit transition could also be delayed by about 30 years, from 2041 to 2070.
however, this assumes that high rates of return are sustained. the outlook for Social Security finances should be judged carefully over the long term, taking into account many variables.
frequently asked questions
Q1. How good is a 20% return on the national pension fund?
A. It is among the highest in the world. considering that the average return for major global pension funds is 6-9%, and even in good years it's around 14%, it's a very strong performance. it is also much higher than the 14% returns of public pensions in Canada and Japan last year.
Q2. What stocks does the National Pension mainly invest in?
A. Samsung Electronics and SK Hynix are the leading stocks, accounting for more than 30% of the domestic equity portfolio. the portfolio also includes semiconductor component material stocks, financial stocks such as KB Financial and Shinhan Holdings, and platform stocks such as Naver. recently, we also added stocks related to defense and nuclear power, including Hanwha Aerospace and Doosan Energy.
Q3. Will higher returns slow down the depletion of the national pension fund?
A. Yes, if the investment return were to increase from the current assumption of 4.5% to 6.5%, the point of fund depletion could be delayed by about 33 years, from 2057 to 2090. the deficit transition could also be pushed back by about 30 years, from 2041 to 2070.
Q4. Why were national pension returns high this year?
A. The main reason is the surge in domestic stocks, especially semiconductor stocks such as Samsung Electronics and SK hynix. overseas stocks also contributed to the increase in returns due to the rise of U.S. technology stocks, rising bond prices, and exchange rate gains from the weakening Korean won.
Q5. The national pension fund has surpassed KRW 140 trillion in assets under management, how big is it?
A. The assets under management, which were around KRW 1,200 trillion until last year, increased by more than KRW 200 trillion in 10 months. This is one of the largest pension fund assets in the world, and they are influential institutional investors in global financial markets.
closing thoughts
achieving a 20% return for a national pension fund is a testament to a sound semiconductor investment strategy, and has positive implications for postponing the point of fund depletion. however, high returns cannot be sustained from year to year, so efforts to stabilize the national pension fund over the long term are still needed.
what are your thoughts on the national pension investment performance and management strategy? share your thoughts in the comments.