South Korea's Pensions to Boost Equity Stake

Via Pension Pulse.

Jung Jae-yoon reports in the JoongAng Daily, Pension funds seen increasing equity stake:

Analysts
say they expect the nation’s public pension funds, which now hold more
than 300 trillion won ($252.73 billion) in assets, to be increasing
their equity holdings soon.

A new survey showed that 330
trillion won in total is held by the nation’s main pension funds,
including the National Pension Fund, the Retirement Pension Fund, the
Korea Teachers Pension Fund, the Government Employees Pension Fund and
the Military Pension Fund, the Financial Supervisory Service said
yesterday.

The data is based on the amount held at the end of
June, except for the Military Pension Fund, the latest figures for which
were at the end of 2009.

Nearly 98 percent of the pension
funds, or 326 trillion won, is invested in various financial
instruments, with bonds taking the biggest portion, followed by
equities and alternative investments such as real estate.

In
the case of the National Pension Fund, which is the biggest by far
with 294.95 trillion won in assets, 75.7 percent of its financial
investments are in bonds, with 19.1 percent in various forms of
equities and 5 percent in alternative investments.

Analysts
say that the public pension funds are likely to increase their
exposure to equities in an effort to get bigger returns on their
investments than that offered by bonds.

Pension
funds still lack the clout in influencing the stock market in the same
way as foreign investors. At the end of June, foreigners held 301.07
trillion won worth in equities and 67.82 trillion won in bonds.

But
market analysts believe there is a possibility that pension funds
could become a key power in the local stock market to challenge that of
foreigners.

“Domestic national pension funds will have
little choice but to expand their portion of equity investments in the
future since they can’t generate high returns through bonds when
interest are so low. The pension funds hold a smaller portion of equity
investments compared to those in advanced countries,” said Oh
Sung-jin, research head at Hyundai Securities.

The National Pension Fund is the fourth largest in the world.

You'll recall South Korea's National Pension Service recorded an overall return of minus 0.75% in 2008, its first loss ever,
with its investment in stocks yielding minus 41.20% that year. Even
though it was the worst return in the Korean fund’s two-decade history,
it still beat other large pension funds which experienced devastating
losses of 25%, 30% or more that year.

Last March, South Korea’s fund got more flexibility to mix investments between stocks and bonds:

The
pension fund will be given a range of as much as 7 percentage points
either side of the target weighting for local stocks of 17 percent, the
ministry said. Previously, the range was as much as 5 percentage points.

The range for local bond investments will be widened to
between 56.3 percent and 82.3 percent of total assets in 2009, or a
difference of as much as 13 percentage points either side of the target
weighting of 69.3 percent. Previously, the range was as much as 10
percentage points.

What remains to be seen is
whether South Korea's pensions will also boost their stake in
foreign stocks and bonds. As I stated in my previous post, shifts in
asset allocation from these sovereign funds are important and need to be carefully monitored.

Comments

[ZackAttack]

Nothing a few hundred thousand artillery shells won't take care of.

[Mitchman]

Interesting.  South Korea's chaebols are their local version of the combination of the government-corporate kleptocracy in cahoots to steal from the common working people.  It will be interesting to see how well "directed" these equity investments will be.  I am sure they will be directed with the same transparency that we have come to appreciate from the Obama administration. <sarcasm off>

It is also interesting that at a point in time when the global economies are slowing overall, the Korean pension funds decide that this is a propitious time to move into the equity markets.  If I remember my reading of what happened during the Depression, it was w world-wide phenomenon and no markets did particularly well.  Maybe they can be a big buyer of the GM IPO.

[ZackAttack]

They really ought to think about buying some anti-submarine warfare capabilities.

[Bruce Krasting]

Korea moves like a snail. A year fro now those percentages will change by at most 1%. So they sell $2b worth of bonds and buy stocks. Most of that will be Korean, some overseas.

$2b switch of bonds for stock is a ho hummer Leo. About 5 or 6 seconds worth of work for some computer. But thanks for "closely monitoring" the situation.

[Mercury]

Yeah but maybe The Obama Administration has decided to start charging for S. Korea's border security...fee payable in U.S. equity index buys!