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 Note
Retirement pensions and mutual aid associations have long established themselves as core players in the capital markets. Although their core purposes differ—retirement pensions (public funds) securing the public’s old-age welfare and mutual aid associations focusing on asset growth and welfare expansion for members—their distinctions extend to asset scale, investment strategies, and organizational structures. This article provides an in-depth analysis of these pivotal funding sources, which are essential capital providers for major institutional investors both domestically and internationally.

During the first half of the year, when Samsung Electronics and SK hynix propelled the market, the Teachers’ Pension Fund was reaping the rewards.

As of the end of last year, 60.92% of the domestic equity portfolio directly managed by the Korea Teachers’ Pension Fund was invested in the electrical and electronics sector. This year, it was semiconductors that drove up the sector. As of the end of June, the annualized return came in at 23.73%. Considering that the target return over the past six years had hovered around 4–5%, this result is nearly fivefold higher. This reflects the distinctive feature of the Teachers’ Pension Fund—an emphasis on ‘direct investments’ within its portfolio.

54% Direct Management... Double-Digit Yields for Three Consecutive Years

According to its Investment Policy Statement (IPS), the Korea Teachers’ Pension Fund revised the ratio of entrusted (outsourced) to direct management from 60:40 to 50:50. This shift centered the allocation, long biased toward outsourcing. In practice, it has moved a step further: As of the end of June, direct management stood at 19.6175 trillion won (54.21%), surpassing entrusted management at 16.5707 trillion won (45.79%). This reflects both the strong historical performance of direct management and its responsiveness to market conditions, which enhances liquidity management.

This sets the fund apart from other pension funds and mutual aid associations. The National Pension Service has a direct management ratio of 48.1%; the Government Employees’ Pension Service stands at 52.7% in equities and 68.6% in bonds as of the end of May. At the end of last year, the Government Employees Mutual Aid Association was at 42.9% (equities), and the Faculty Mutual Aid Association was at 19% as of the second quarter. Although direct comparisons are difficult due to different disclosure timings and criteria, the divergent directions are clear.

The numbers speak for themselves. The managed assets of the Teachers’ Pension Fund surged from 23.4933 trillion won in 2021 to 36.1882 trillion won as of the end of June this year.

For 2023, the fund achieved a return of 13.46%; in 2024, 11.63%; and in 2025, 18.93%—double-digit returns for three consecutive years. For this year, the return as of June was 23.73%. Since 2021, the only year with a negative return was 2022 (-7.75%).

The main driver for this year’s high returns has been the excess performance in domestic and foreign equities. As of the end of June, the equity portfolio amounted to 17.499 trillion won, comprising 48.36% of total assets. The share of domestic equities in that portfolio ranges from 60% to 70%. While favorable market conditions in the first half certainly helped, the consensus is that the fund outperformed its benchmark through active stock selection.

By asset class, the allocation is as follows: equities 48.36%, bonds 28.56% (10.3336 trillion won), alternative investments 22.42% (8.1129 trillion won), and cash equivalents 0.67% (242.7 billion won). By region, the split is nearly even between domestic at 19.5248 trillion won (53.95%) and overseas at 16.6634 trillion won (46.05%). A Teachers’ Pension Fund official stated, “The IPS mandates a comprehensive approach to management—balancing stability, liquidity, and profitability.”

With market turbulence resurging from July, the structural strengths of the Teachers’ Pension Fund will once again become apparent in the second half of the year. The premise of direct management is “agile response”—so the challenge and opportunity lie in how it manages volatility.

Fund Depletion in 20 Years, School Closures and a Shrinking Student Population... The Daunting Tasks Facing a Two-Year CIO

Even with stellar investment returns, the fund’s fiscal clock ticks independently. According to the Ministry of Education’s 2025 6th Financial Recalculation Report presented in January, the Teachers’ Pension Fund is projected to run a fiscal deficit by 2028 and be depleted by 2047. While it has recorded double-digit annual returns for the past three years, over the past five years, average annual pension benefit payouts have increased by 11.0% and the number of recipients by 7.9% per year. This means investment earnings are failing to keep pace with the growth in benefit payments. Indeed, the fiscal surplus has shrunk from 2.135 trillion won in 2021 to just 449.3 billion won in 2024—down to one-fifth its original volume.

There is also a unique variable not found in other public pension funds—school closures. Employees of private schools, not covered by employment insurance, instead receive retirement pensions five years after losing their job position, in accordance with the Government Employees Pension Act. With the school-age population projected to fall from 6,978,000 in 2025 to the 4.1 million range in the early 2040s, early retirement pensioners are bound to increase. As of the end of 2024, 410 people are receiving retirement pensions on account of school closures, and among them, 65 are in their 30s or 40s. Once a pension begins, it is paid until death, thereby steadily increasing the fund’s fiscal burden.

The composition of fund members has also changed from its original design. Although the system was launched in 1975 to achieve parity with national and public school teachers, the number of participating teachers peaked at 174,000 in 2015 and has since declined, while university hospital staff increased from 57,000 to 126,000 in 2024, now accounting for 39.5% of total members. The National Assembly Budget Office stressed, “Parametric reform through adjustment of contribution rates and benefits is urgently needed,” and added, “Fundamental redesign of the system, taking into account the changing profile of participants, is also necessary.”

The problem is that the term for a post responsible for a 20-year challenge is only two years. At the end of last month, Baek Juhyeon took office as Chief Investment Officer (CIO) of the fund. Previously, Baek had worked in Samsung Life’s New York office and in its asset management division, and since 2022, served as CIO for the Government Employees Pension Service. During their tenure, Baek recorded an 11.5% mid-to-long-term asset return at the end of 2023, the highest since 2006, resulting in a one-year extension. The CIO position now filled by Baek had been held by former CIO Jeon Beomsik for three years, following a one-year extension after his standard two-year term, before he moved to the National Federation of Fisheries Cooperatives. Typically, the CIO term for pension funds and mutual aid associations is two years, with the possibility of one-year extensions based on performance. Although the job requires a decades-long perspective through 2047, the role rotates every two to three years on average.

Since the proportion of direct management has been increased ahead of policy guidelines, strengthening organizational capabilities to support this is also an ongoing challenge. Excluding the investment strategy and risk management divisions, the Teachers’ Pension Fund has 28 employees responsible for asset management. As the amount of directly managed funds increases, the burden of sourcing new investment opportunities and post-investment management grows as well. Ensuring a robust structure that remains stable regardless of individual turnover is also key for sustaining the current level of performance—and a major task for the new CIO.

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