"Three Years' Worth of Pensions Wiped Out"...NPS Faces 180 Trillion Won Shock After Missing Peak Sell-Off [Fund and Mutual Aid In-Depth Analysis] ②

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 recognized as core players in the capital market. Besides the fundamental differences—pension funds provide retirement security for the public, whereas mutual aid associations focus on asset growth and welfare expansion for their members—there are also clear distinctions in asset size, investment strategies, and organizational structures. This series offers in-depth analysis of the nation’s pension funds and mutual aid associations, which also serve as major capital sources for both domestic and global institutional investors.

National Pension Service Fund Management Headquarters Exterior View

The National Pension Service (NPS) announced a return of 26.18% as of the end of May this year. This figure surpassed last year's record annual return of 18.82%—the highest since the fund's establishment—in just five months. Assets under management ballooned to 1,848.702 trillion won at the end of May from the 1,500 trillion won range recorded at the end of last year, marking an increase of over 340 trillion won in five months. It was the highest point reached since the fund began collecting contributions in 1988.

However, the peak was short-lived. In just two months, the KOSPI lost one-third of its value, and the valuation of the domestic stocks held by the NPS similarly plummeted. A simple estimate, applying the index’s rate of change, suggests that the amount wiped out in just two months is equivalent to the total pension payouts the fund makes over three and a half years.

The bigger the fund grows, the greater the swings between good and bad times—but that is not the only issue. The NPS had postponed mechanical selling, or rebalancing, in the high-point zone. In principle, it should have reduced some assets, but instead faced a sharp downturn while still holding them. To understand why the principles were set aside, one must first consider the unique nature of the NPS.

The unique characteristics of the NPS become clearer when compared to major foreign superannuation funds and sovereign wealth funds. Norway’s Government Pension Fund Global (GPFG) invests oil and gas proceeds exclusively overseas, in principle, to avoid overheating the domestic economy. Japan’s Government Pension Investment Fund (GPIF) maintains a rigidly balanced portfolio, allocating roughly 25% each to domestic bonds, foreign bonds, domestic stocks, and foreign stocks. In contrast, the NPS, despite being a social insurance fund with future pension obligations, cannot be entirely separated from the domestic capital market. The NPS is an investor bearing the simultaneous burdens of achieving returns, stabilizing markets, sustaining pension finances, and fulfilling policy expectations.

Double-digit returns for three consecutive years...Outperforming global pension funds

Judging by recent performance, the NPS’s results are impressive. Its returns have been competitive even among the world’s largest pension funds and sovereign wealth funds. The NPS recorded a -8.28% return in 2022 due to soaring global interest rates but quickly rebounded in 2023 with 13.59% and then 15.00% in 2024. Last year, the fund achieved its best annual performance ever with a return of 18.82%, generating 231.6 trillion won in investment income in a single year. This outpaced world-leading funds including California Public Employees’ Retirement System (CalPERS, at 15.46%), GPFG (15.11%), and GPIF (12.29%).

This year, domestic equities led the performance. As of the end of May, the NPS’s return reached 26.18%. Returns on domestic equities during this period soared to 106.76%. The valuation of domestic stocks held by the NPS jumped from 264 trillion won at the end of last year to 544 trillion won at the end of May, with domestic equities making up 29.4% of the overall portfolio. Foreign equity holdings totaled 651 trillion won, accounting for 35.2%.

This highlights the ‘two faces’ of NPS’s performance. High returns achieved domestically are certainly successes, but simultaneously the NPS’s influence within the local market grows. When the NPS buys, the market can rise; when it sells, the market can waver. The NPS’s asset allocation decisions can ripple through domestic stock supply and demand, retail investor sentiment, and even policy debates.

Missed timing on rebalancing..."Only foreigners profited"

The recent controversy over the temporary suspension of domestic equity rebalancing also stems from this unique character. The NPS initially set its 2026 domestic equity target allocation at 14.4%, but raised it to 14.9% at the start of this year. Then, considering heightened volatility in the domestic market, it temporarily suspended rebalancing when asset allocation deviated from its strategic asset allocation (SAA) range. In May, the NPS Fund Management Committee further raised the domestic equity target to 20.8% and, again temporarily, expanded the SAA tolerance range. The NPS explained that these moves reflected a need to account for possible structural changes in the local equity market and to mitigate market shocks.

The issue lay in the timing. After rebalancing was suspended, the KOSPI surged, led by semiconductor stocks, and the NPS’s allocation to domestic equities greatly exceeded its target. Yet after the end of May, a sharp downturn in the local market meant the NPS missed its chance to lock in some profits at the peak. Foreign investors took the lion’s share, having offloaded about 150 trillion won of KOSPI stocks in just the first half of the year, and cashed in on price gains.

The KOSPI closed at 8,476.15 at the end of May, but by July 29 it had dropped to 5,663.24—a decline of 33.19%. If this percentage drop is simply applied to the NPS’s 544 trillion won of domestic equities, the paper losses would be around 180 trillion won solely due to the market downturn. However, this is merely a rough estimate based on index movement—the actual profit or loss depends on the NPS’s portfolio composition and trading activity.

In 2025 alone, the NPS’s pension payouts amounted to approximately 49.7 trillion won. The National Assembly Budget Office previously analyzed that the 231.6 trillion won in investment income earned by the NPS last year delayed the fund’s depletion by about four years. Based on this, the estimated decrease in NPS’s domestic equity valuation after May this year could bring forward the fund's depletion by about three years. In other words, gains accumulated over half a year were wiped out in the next half year.

The NPS is inherently a long-term investor. While the argument to avoid mechanical selling during periods of market turbulence holds merit, the fundamental principle of fund management remains asset allocation. When a particular asset class surges far above its target allocation, the basic rule is to trim holdings to manage risk. If it appears that rebalancing has been delayed to prop up the market, criticisms will arise that policy considerations have been prioritized over long-term returns.

As one chief investment officer (CIO) at a pension fund and mutual aid association put it, "The NPS’s impact on the market is so large that their actions must be careful, but failing to trim positions at the peak after suspending rebalancing was a grievous error. If it looks as though the guidelines have wavered between principles and market stabilization, trust in future decision-making could be undermined."

Forcing Centerfield GP replacement triggers excess...Labor abuse controversy, too

Though overshadowed by domestic equities, the NPS’s real weight extends globally. As of the end of May, its overseas equities were valued at 651 trillion won, over 100 trillion won more than its domestic equity holdings, and the NPS is considering opening its fifth overseas office in China or India, after New York, London, and Singapore. The goal is not only to entrust funds but to directly source deals on the ground.

However, controversies have also arisen in alternative investments. A notable example is the attempted replacement of the general partner (GP) for Centerfield, a prime office property in Seoul’s Gangnam district. Centerfield is a large-scale office asset in which the NPS invested in 2018, appointing IGIS Asset Management as GP. The investment amount was about 2.1 trillion won, and the current market value is estimated to be as high as 4 trillion won. With IGIS Asset Management moving to force a sale of the property despite opposition from the NPS and Shinsegae Property, the NPS convened its Investment Committee in January and made the drastic move of replacing the GP with Koramco Asset Management.

However, internal compliance teams at the time intervened, citing a lack of legal grounds for forcing a GP change during the contract period. The executive responsible for alternative investments, who had been cautious about a GP change, stepped down from the position outside of regular personnel rotations in December last year. On July 3, the NPS’s Alternative Investment Committee ultimately voted down its own proposal to replace the GP. The reason cited was a lack of legal grounds for paying success fees to the existing GP, IGIS Asset Management, when the property had not actually been sold. In effect, after pressuring the incumbent GP and nominating a new one, the NPS reversed its own decision at the very last moment.

The fallout extended into personnel affairs. The NPS’s Audit Office found potential conflicts of interest during the process of selecting a new GP candidate. As a result, on July 15, the real estate investment director identified as Mr. An was suspended from duty. On the same day, a director-level official from the Compliance Office was also placed on standby. Civic groups such as Public Pension Reform Action and the People's Solidarity for Participatory Democracy criticized the incident as a "structural failure of internal controls," insisting that responsibility should not be assigned merely to individuals but thoroughly investigated by external agencies, with broader governance reforms undertaken.

Managing the nation’s retirement funds...But excessive secrecy is a concern

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On January 26 this year, the NPS Fund Management Committee resolved on asset allocation measures, such as increasing its weighting in domestic equities, and classified the related meeting minutes as confidential until 2030—a four-year embargo. Traditionally, minutes on general topics are released in the year following the meetings, but those involving medium- and long-term asset planning have often been withheld. In December last year, the NPS also made the criteria and formula for triggering strategic foreign exchange hedging confidential and amended procedures to allow the Ministry of Health and Welfare and the NPS Fund Management Headquarters to initiate hedges at any time, rather than requiring approval at each committee meeting. The rationale cited by the NPS is market stability and "strategic ambiguity."

Given the unique nature of the NPS, it is clear that making all information public in real-time is impossible. Revealing what assets the NPS is buying or selling and when could lead to front-running and price distortions. However, as the fund manages contributions paid by the public, its duty to provide accountability is significant. As one financial investment industry insider put it, "When an excessive amount of decision-making is withheld from the public under the guise of market impact, it becomes impossible for outsiders to distinguish between political decisions and investment decisions. There needs to be greater disclosure subject to subsequent verification, as well as stronger independent oversight mechanisms."

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