Betting 60% on Electronics... The Secret Behind Teachers' Pension's Top Returns Is 'Direct Management' [In-depth: Pension and Mutual Aid Funds] ④

23.73% Return in the First Half... Nearly Five Times the Target
54% Proportion of Direct Management, Surpassing Entrusted Management with Rapid Response
School Closures and Falling Student Population... Fund Projected to Be Depleted by 2047

Editor's NotePension funds and mutual aid associations have long established themselves as key players in the capital market. In addition to their primary differences—pension funds for securing retirement income for the public and mutual aid associations for expanding asset growth and welfare for their members—they also show remarkable distinctions in asset scale, investment strategies, and organizational structures. This article provides an in-depth analysis of pension funds and mutual aid associations, both major sources of capital for domestic and global institutional investors.

In the first half of the year, as Samsung Electronics and SK hynix powered the market upwards, the Private School Teachers’ Pension was reaping strong returns.

According to the Private School Teachers’ Pension (hereafter “PSTP”), 60.92% of the domestic equities directly managed by the fund (as of the end of last year) were invested in the electrical and electronics sectors. Semiconductors were the driving force behind this sector’s growth this year. As of the end of June, the return stood at 23.73%. With target annual returns in the 4–5% range for the past six years, this figure is nearly five times as high. This performance reflects the PSTP’s characteristic high proportion of “direct investment.”

Direct Management at 54%... Double-Digit Returns for Three Straight Years

PSTP revised its Investment Policy Statement (IPS) to adjust the ratio of outsourced to direct management from the previous 60:40 to an even 50:50. The balance, which had leaned toward outsourcing for a long time, was thereby moved to the middle. In practice, the field has taken this a step further. As of the end of June, directly managed assets stood at 19.6175 trillion won (54.21%), surpassing the 16.5707 trillion won (45.79%) under outsourced management. This outcome is attributed to previously strong performance from direct management and the advantage of being able to respond quickly to market changes, facilitating better liquidity management.

This is a clear point of differentiation from other funds and mutual aid associations. The National Pension Service’s direct management ratio is 48.1%, the Government Employees’ Mutual Aid Association is at 42.9% (stock basis, end of last year), and the Korean Teachers’ Credit Union is at 19% (as of Q2). The Government Employees’ Pension Fund reported 52.7% for equities and 68.6% for bonds (as of the end of May). As disclosure standards and timing vary by institution, direct comparison is difficult, but the directional differences are clear.

The results speak for themselves. PSTP’s assets under management soared from 23.4933 trillion won in 2021 to 36.1882 trillion won as of the end of June this year.

Annual returns reached double digits for three consecutive years: 13.46% in 2023, 11.63% in 2024, and 18.93% in 2025; as of June this year, the return is 23.73%. The only year of negative performance since 2021 was 2022, with -7.75%.

This year’s high earnings are owed to outperformance in domestic and global equity segments. As of the end of June, equity holdings reached 17.499 trillion won, comprising 48.36% of total assets. Of this, domestic equities are believed to make up approximately 60–70%. While a favorable equity market in the first half gave a boost, internal evaluation highlights that outperformance was achieved by selecting individual stocks that beat benchmark indices.

By asset class: equities accounted for 48.36%, bonds 28.56% (10.3336 trillion won), alternative investments 22.42% (8.1129 trillion won), and cash-equivalent assets 0.67% (242.7 billion won). Regionally, domestic assets stood at 19.5248 trillion won (53.95%) and overseas assets at 16.6634 trillion won (46.05%), representing an almost even distribution. A PSTP official explained, “Even the IPS essentially requires management to comprehensively consider safety, liquidity, and profitability.”

As the market has become volatile again in July, how the PSTP’s structural approach performs will likely be revealed in the second half of the year. The rationale for direct management has been the ability to “respond quickly,” so navigating a period of volatility could prove both a challenge and an opportunity.

Fund Depletion in 20 Years, School Closures, and Declining Student Populations... A Daunting Two-Year Task for the CIO

Even with strong investment performance, the fund’s fiscal horizon moves independently. According to the results of the 6th actuarial review, disclosed in the Ministry of Education’s work report in January, the pension balance is expected to slip into deficit in 2028 and to be depleted by 2047. Despite three straight years of annual returns in the 10% range, over the past five years, annual pension benefit payouts have increased by 11.0% and the number of beneficiaries by 7.9% on average. In other words, investment returns are not keeping pace with surging expenditures. In fact, the surplus shrank from 2.135 trillion won in 2021 to only 449.3 billion won in 2024—just one-fifth the former size.

PSTP faces an additional variable not found in other public pension systems: school closures. Private school teachers are not eligible for unemployment insurance and, if their positions are eliminated due to school closures, the Public Official Pension Act is applied, allowing retirement pension payments to begin five years after leaving the job. The school-age population is projected to fall from 6.978 million in 2025 to the 4.1 million range by the early 2040s, inevitably increasing the number of early pension recipients. As of the end of 2024, 410 people are receiving retirement pensions due to school closures, 65 of whom are in their 30s or 40s. Once started, pension payments continue until death, becoming a direct fiscal burden.

The composition of subscribers has also changed from the system’s original design. Launched in 1975 to match the benefits of public and national school teachers, the scheme has seen the number of subscribing teachers peak at 174,000 in 2015 and then decline, while the number of university hospital staff has increased from 57,000 to 126,000 in 2024, comprising 39.5% of all members. The National Assembly Budget Office pointed out, “Comprehensive reform of the base population definition is urgently needed—adjusting the contribution rates and payout standards—as is a fundamental reexamination of the system, considering the characteristics of subscribers.”

The problem is that the CEO tasked with a 20-year assignment is only given a two-year term. At the end of last month, Baek Juhyeon, Head of the Fund Management Department (CIO), started his first day. With experience at Samsung Life’s New York branch and in asset management, and having served as CIO of the Government Employees’ Pension from 2022, he is considered an “investment expert.” At the end of 2023, during his previous role, he achieved 11.5% returns on mid- and long-term assets, marking a post-2006 high and securing a one-year extension of his term. The post he now fills was left vacant by the previous CIO, Jeon Beomsik, who completed a three-year term before moving to the National Federation of Fisheries Cooperatives. Typically, the CIOs of pension funds and mutual aid associations are appointed for a basic term of two years, with extensions awarded annually based on performance. Though the job requires looking as far ahead as 2047, in reality, appointments change every two to three years.

Since the proportion of direct management has been raised ahead of policy targets, strengthening organizational capacity remains an ongoing task. PSTP’s asset management personnel, excluding investment strategy and risk management departments, number 28. As the volume of direct capital grows, so does the burden of identifying and monitoring individual investments. Building a robust structure that is resilient to personnel changes is also essential for sustaining results, and this will be a challenge for the new CIO.

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