S.Korea’s Pension Fund Lowers Return Target as Economy Slows

May 30, 2013 Leave a comment

S.Korea’s Pension Fund Lowers Return Target as Economy Slows

South Korea’s National Pension Service, the nation’s biggest investor, cut its five-year target for investment returns to account for slowing economic growth.

The agency, which had about $359 billion in assets as of March, is targeting returns on its stock, bond and property investments of 6.1 percent for 2014-2018, down from 6.6 percent announced last year for 2013-2017, according to a statement released today by the Ministry of Health & Welfare, which oversees the NPS.

The lower objective comes after the government cut its forecast for 2013 gross domestic product on March 29 to 2.3 percent from 3 percent. The Finance Ministry unveiled a $15 billion supplementary budget on April 16 to support exporters pressured by a weaker Japanese yen and revive an economy that grew last year at the slowest pace since 2009.“The ministry lowered the return target rate on investments for 2014-2018 because we look at the nation’s GDP and the inflation data when setting the target,” Baek Hyoung Ki, an official at the national pension finance division of the health ministry, said by phone today.

A cut in targeted returns is “especially meaningful” because it shows that the country is entering a low-growth era, which will “inevitably lower profit expectations in stocks and bonds in the long term,” Heo Pil Seok, chief executive officer of Midas International Asset Management Ltd., which oversees about $5.3 billion, said by telephone in Seoul.

Boost Stocks

The NPS, which named a new chairman on May 24, has been seeking to boost its equity holdings and lower its bond investments to raise returns for its members. Its latest five-year asset allocation plan calls for the pension fund to increase stocks to more than 30 percent of assets by the end of 2018 from 26.7 percent in 2012, according to today’s statement.

The pension service is targeting bonds to take up less than 60 percent of assets by 2018 from 64.8 percent last year, according to the statement. Bonds accounted for 68.7 percent of assets at the end of 2011, while equities represented 23.5 percent.

The Korean won has appreciated 11 percent against the yen in the first five months of the year, dimming the outlook for the nation’s exporters. Hyundai Motor Co.’s net income fell 15 percent in the first quarter, hurt by Japanese competition.

Central bank data on April 25 showed South Korea’s economy grew 0.9 percent in the first quarter. The weakening yen is projected to have a bigger impact on the Korean economy in the second quarter, Choi Hee Nam, a senior finance ministry official said in an interview in Sejong on May 21. He also said more “support measures” are possible for South Korean industries to counter effects of yen depreciation.

To contact the reporter on this story: Sharon Cho in Seoul at ccho28@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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