National Pension Generating Good Returns on Stock Investment

The National Pension Fund is expected to raise its investment in stocks. What would be a good portfolio for the National Pension Fund, which comprises contributions by insured Korean people?

It is said that in case of stock investment, consigning the asset management to outside professional firms is favorable.

Some stock investments, which the National Pension Corporation (NPC) entrusted to outside firms since July 2001, are reported to have yielded higher return on investment (ROI) than the market average.

According to the Fund Management Center at the NPC yesterday, the accumulated ROI over the past two years was 50.34% as of the end of July, 30.28% higher than the growth rate of Korea Stock Price Index (KOSPI) of 20.06%.

Thirty-seven fund management firms, designated with the NPC assets have earned their clients 600 billion won in total. Combined with this, total assets reached over 2.6 trillion won as of the end of July. Among the designated fund management firms, eight new firms achieved 40 to 80% ROIs over the past two years, beating the market average.

For the first seven months this year, ROI of the entrusted fund stands at 24.44%, higher than the market average of 13.7%.

NPC`s Executive Director of Operations Cho, Kook-jun explained, “We distributed the fund managing guidelines to selected companies, and have encouraged competition between them by grading their performance on a regular basis, which lead to good performance of the fund management.”

In the meantime, the Fund Operation Department invested 3.45 trillion won of the fund on its own for the first seven months of this year and generated 17.27% in ROI beyond the market average. Jang, Jae-ha, the head of the Stock Investment Team, said “Our long-term investment comprises stocks with high internal value and recently we increased our gains from buying preferred stocks, which promised handsome dividends.”

Yield on 79 trillion won, invested in bonds this year up until July, is 6.6% per annum, which is higher than the 4.17% average yield of funds, which mostly invest in bonds with over 5 billion won collected in public offering.

From 1998 to July of this year, the NPC has collected over 87.19 billion won in insurance premiums, generated 34.89 trillion won in ROI, and spent 17.32 trillion won in insurance money.

The pension fund has been invested not only in stocks and bonds but also in public utilities. The accumulated yield rate from January 1988 to July 2003 was 8.89%.

The National Pension Corporation took first place for the past three consecutive years by scoring the highest in asset management for 2002, according to the Ministry of Planning and Budget, which recently released the performances of 46 pension funds in Korea.

Suk-Ho Shin kyle@donga.com