Money-losing investor

The state-run pension fund needs a better strategy

The National Pension Service, which plays the role of a safety net for retirees, has shown disappointing performance. The NPS - the nation's top institutional investor and the world's third-largest with 644 trillion won ($570 billion) in assets - said its rate of investment return fell to minus 0.92 percent in 2018, the lowest since its establishment two decades ago.

It marked the first time in 10 years that the NPS posted a negative return since the global financial crisis in the late 2000s triggered by U.S. subprime mortgage turmoil.

Officials attribute the poor report card to the fall of the U.S. stock market due to the trade war with China. They cite the steeper drops of minus 7.7 percent recorded by the Japanese Government Pension Investment Fund and minus 3.5 percent by the California Employees' Retirement System.

They are only half correct. Unlike other global pension funds that invest nearly half of their assets in stocks, the NPS put only 35 percent of its investment into stocks with the remaining 53 percent invested in traditionally safer securities, such as bonds. Such an investment portfolio has the advantage in that it defends rate of return in a bearish market, as seen last year.

The NPS recording a negative return rate despite its substantial share of safe assets shows it has problems with its operational ability, even considering adverse external factors such as the slump of global financial markets. For example, the post of NPS chief investment officer remained vacant for too long, which in turn triggered the exodus of competent fund managers. Nothing displays this better than the handsome return rate of 8.4 percent recorded by the Canada Pension Plan Investment Board, which also has a low stock investment ratio of 32 percent.

One cannot, of course, evaluate the overall performnace of a pension fund from just one year's return rate. However, the NPS' recent operating pattern, in which it earns less in a bull market and loses more in a bear market, is simply not sustainable. The time has long past for the NPS to reshape its long-term strategy by diversifying investment portfolios, instead of blaming the external envirnment.