"Three Years' Worth of Public Pensions Lost: NPS Faces 180 Trillion Won Shock After Missing Peak Selloff [In-Depth Analysis of Funds and Mutual Aid Associations]"

Returns Surpass Leading Global Pension Funds

Missed Rebalancing While Trying to Limit Impact on Domestic Market

Abuse of Power by Key Personnel Amid Growing Influence

Editor's NotePension funds and mutual aid associations have long been the key players in the capital markets. While the fundamental roles of pension funds (guaranteeing public retirement) and mutual aid associations (growing member assets and improving welfare) differ, they also show distinct differences in asset scale, investment strategy, and organizational structure. This article offers an in-depth analysis of pension funds and mutual aid associations, which serve as major sources of capital for leading institutional investors at home and abroad.

The National Pension Service Fund Management Headquarters exterior view

The investment return of the National Pension Service (NPS) as of the end of May this year was 26.18%. This figure surpassed last year's annual record high of 18.82% in just five months. The fund's reserves swelled to 1,848.702 trillion won, increasing by over 340 trillion won from the 1,500 trillion won range at the end of last year. This marked the fund’s highest level since it began collecting the first insurance premiums in 1988.

However, this peak was short-lived. In the following two months, one-third of the KOSPI index evaporated. The valuation of NPS’s domestic equity holdings also plummeted. Applying the index change rate as a simple estimate, the decrease over those two months equates to the amount NPS would spend in total pension payments over three and a half years.

The bigger the fund grows, the greater the swings between periods of gains and losses. But that is not the only issue. The National Pension Service delayed automatic selling—so-called mechanical rebalancing—during the market peak. By principle, assets should have been offloaded, but the fund instead took the full brunt of the downturn with its holdings. To understand why the fundamental rules stopped being applied, it is necessary to examine what kind of fund the NPS actually is.

The unique nature of the NPS becomes clearer when compared to other global mega pension funds and sovereign wealth funds. Norway’s Government Pension Fund Global (GPFG) manages oil and gas revenue but, as a rule, only invests overseas to prevent overheating the domestic economy. Japan’s Government Pension Investment Fund (GPIF) keeps a highly structured portfolio, allocating around 25% each to domestic bonds, foreign bonds, domestic stocks, and foreign stocks. In contrast, the NPS is a social insurance fund responsible for future pension liabilities, yet it cannot be fully separated from Korea's capital markets. It has to juggle investment returns, market stability, pension finances, and policy expectations all at once.

Double-Digit Returns for Three Consecutive Years: Outperforming Overseas Funds

Looking at recent performance, NPS’s results have been stellar. Its returns are impressive even compared to global mega pension funds and sovereign wealth funds. The NPS recorded a -8.28% return in 2022 amid a global interest rate surge but bounced back quickly with returns of 13.59% in 2023 and 15.00% in 2024. Last year, the NPS achieved an 18.82% return, marking its highest performance since inception, and generated operating profits of 231.6 trillion won in a single year. This outpaced other leading global funds, including California Public Employees’ Retirement System (CalPERS, 15.46%), Norway’s Government Pension Fund Global (GPFG, 15.11%), and Japan’s GPIF (12.29%).

This year, domestic stocks drove the performance. As of the end of May, the return reached 26.18%. During the same period, domestic stock returns reached 106.76%, a triple-digit figure. The value of domestic equities held by NPS jumped from 264 trillion won at the end of last year to 544 trillion won at the end of May, raising the portion of domestic stocks in the total portfolio to 29.4%. The value of overseas equities was 651 trillion won, accounting for 35.2% of the portfolio.

This point also represents the ‘two faces’ of NPS performance. High returns in the domestic market are a source of achievement, but the fund's influence on the domestic stock market also grows accordingly. When the NPS buys, the market rises; if it sells, the market can be shaken. A single asset allocation decision by NPS affects domestic stock supply and demand, individual investor sentiment, and even policy debates.

Missed Rebalancing Opportunities: "Only Benefiting Foreign Investors"

The recent controversy over postponing the rebalancing (asset adjustment) of domestic stocks also stems from this distinct structure. Initially, the NPS set its domestic equity target for 2026 at 14.4%, but raised it to 14.9% at the start of this year. Amid high volatility in the domestic market, it decided to temporarily forgo rebalancing if the strategic asset allocation (SAA) range was exceeded. In May, the Fund Management Committee sharply increased the target proportion of domestic stocks to 20.8% and temporarily expanded the SAA allowance. The official position was that these steps reflected potential structural changes in the domestic market and the need to mitigate market shocks.

Timing, however, is the main issue. After suspending rebalancing, the KOSPI rose steeply, led by semiconductor stocks. Accordingly, the NPS’s share of domestic equities exceeded its target by a significant margin. But after the end of May, the domestic market plunged, and the NPS is now criticized for missing a chance to lock in some gains at the peak. Foreign investors sold about 150 trillion won worth of KOSPI shares in the first half of the year, reaping most of the market’s upward movement.

The KOSPI’s closing price at the end of May was 8,476.15, but by the 29th, it had dropped to 5,663.24—a decline of 33.19%. If this change is applied simply to the 544 trillion won of domestic equities held by NPS, the market drop alone reduced the valuation by roughly 180 trillion won. However, this is a rough estimate based on index fluctuation; the actual profit or loss depends on the composition of NPS stock holdings and whether or not trades were made.

The National Pension Service paid out approximately 49.7 trillion won in annual pension payments in 2025. The National Assembly Budget Office previously analyzed that the 231.6 trillion won in operating profits NPS earned last year pushed back the expected depletion of the fund by about four years. Based on this, the estimated decline in domestic equity valuation since the end of May will bring the depletion date forward by about three years. Essentially, the profits earned in half a year have been wiped out in another half year.

The National Pension Service is a long-term investor. While there is logic in avoiding automatic selling to minimize market shocks, the basic principle of fund management is asset allocation. When a specific asset class rises far above the target proportion, reducing holdings to manage risk is fundamental. If delays in rebalancing appear to serve as a means to prop up the stock market, the fund will inevitably face criticism for putting policy considerations ahead of long-term investment returns.

A chief investment officer of a major pension fund or mutual aid association commented, "NPS’s market influence is so significant that caution is understandable, but failing to reduce the proportion at the market peak after suspending rebalancing is a grave error. If it appears that the standards waver between principles and market stability, confidence in future decision-making may be weakened."

Forcing a Change of Centerfield GP: Risky Move Spurs 'Power Trip' Controversy

Overshadowed by domestic equity performance, the National Pension Service’s main weight also lies elsewhere. As of the end of May, the value of overseas equities held by NPS was 651 trillion won—over 100 trillion won more than its domestic equities. The NPS is reviewing plans to establish its fifth overseas office, after New York, London, and Singapore, possibly in China or India. It aims to go beyond outsourcing and directly source deals in the local market.

The NPS’s alternative investment operations have also sparked controversy. A prime example is the attempted replacement of the general partner (GP) managing the prime Gangnam area office property, Centerfield in Yeoksam. Centerfield is a mega office asset in which the NPS invested in 2018, appointing IGIS Asset Management as the GP. The investment was about 2.1 trillion won, and the current market value is estimated at up to 4 trillion won. When IGIS Asset Management attempted to sell the asset in defiance of NPS and Shinsegae Property, the NPS convened the Investment Committee in January and took the extraordinary step of replacing the GP with Koramco Asset Management.

However, the internal compliance unit at the time raised objections, citing a lack of legal grounds for forcibly changing the GP during the contract period. The official responsible for the deal, who had been cautious about the switch, left his position in December last year—neither at the regular time for organizational reshuffles nor during an expected personnel move. On July 3, the NPS Alternative Investment Committee ultimately rejected the GP replacement plan it had previously pushed forward. The reason was that it would not be legally valid to pay a success fee to the original GP, IGIS Asset Management, without actually selling the asset. The NPS had pressured the original GP and even appointed a new GP, only to reverse its own decision at the last minute.

This ripple effect extended to personnel measures. The NPS’s audit office discovered a potential conflict of interest since Koramco Asset Management, the new GP candidate, had hired a former NPS senior official. As a result, on July 15, the head of real estate investment (Mr. An) was suspended from duty, and reportedly a director-level official in the compliance department was also suspended the same day. Civil organizations such as the National Public Pension Action and the People's Solidarity for Participatory Democracy condemned the case as a 'systemic failure of internal controls' and argued that the matter should not be closed with individual disciplinary measures; instead, they called for a formal investigation and a reform of governance.

Managing the Public's Retirement Funds: Concerns Over Excessive Secrecy

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On January 26, the NPS Fund Management Committee approved asset allocation plans, including increasing the proportion of domestic equities, and decided to keep related meeting minutes confidential for four years until 2030. This was a break from the previous practice of releasing the minutes in the year after the meeting. Earlier, in December last year, the NPS also decided to withhold both the cap and formula for triggering strategic FX hedging (to minimize currency fluctuation risks), and transferred the authority for executing FX hedging to a working-level group comprised of the Ministry of Health and Welfare and the NPS Fund Management Headquarters, allowing more frequent interventions without full committee approval. The NPS’s stated motivation is market stability and 'strategic ambiguity.'

Given the fund’s particularities, it is clearly difficult to disclose all information in real time. If the market knows when and how much of a specific asset the NPS is buying or selling, it could lead to front-running and price distortion. However, as a fund managing public money, the NPS simultaneously bears a significant responsibility to explain its actions. One official from the financial investment industry commented, "If too many decisions are kept confidential on the pretext of market impact, it becomes hard for outsiders to distinguish between a political call and an investment judgment. There should be greater disclosure of information that can be verified after the fact, and stronger, independent oversight mechanisms."

This content was produced with the assistance of AI translation services.