SEOUL – The National Pension Service (NPS) of South Korea is facing both praise and criticism after preliminary estimates suggest it achieved its highest-ever investment return rate of around 15% in 2024. This impressive performance, driven largely by overseas investments, has fueled discussions about the fund's future investment strategy and its role in the domestic economy.

Record-Breaking Returns and Shifting Investment Focus

The NPS's stellar performance in 2024 follows a broader trend of improved returns since 2023. After a challenging period in 2022, the fund rebounded with a 13.59% return in 2023, exceeding previous records. This resurgence is attributed to the NPS's strategic shift towards overseas investments, particularly in stocks and alternative assets like real estate and private equity.

The shift was driven by concerns about the long-term sustainability of the pension fund, given the country's rapidly aging population and the potential for domestic market saturation. By diversifying its portfolio and seeking higher returns in overseas markets, the NPS aims to bolster its financial position and ensure its ability to meet future pension obligations.     

Overseas Investments Lead the Way

In 2024, overseas investments played a crucial role in the NPS's success. While domestic stocks struggled, overseas equities delivered substantial returns, exceeding 30% by the end of the year. Alternative investments also contributed positively to the overall performance.

This emphasis on overseas markets is reflected in the NPS's asset allocation targets. The fund has been steadily increasing its overseas stock holdings, aiming for a 33% share of its total assets in 2024. Similarly, its allocation to alternative investments has also risen.

Debate on Domestic vs. Overseas Investment

While the NPS's overseas-focused strategy has yielded impressive results, it has also sparked debate about its impact on the domestic economy. Some critics argue that the fund's reduced allocation to domestic assets could hinder the growth of local businesses and the development of the Korean capital market.

Others, however, maintain that the NPS's primary responsibility is to maximize returns for its beneficiaries, ensuring the long-term viability of the pension system. They argue that focusing on overseas investments is a necessary step to achieve this goal, given the limited growth potential of the domestic market.

Looking Ahead

The NPS's record-breaking performance in 2024 has undoubtedly strengthened its financial position and eased concerns about the fund's long-term sustainability. However, the debate about its investment strategy and its role in the domestic economy is likely to continue.

As the fund continues to grow and its influence on the financial markets increases, the NPS will need to carefully balance itsdual objectives of maximizing returns and supporting the domestic economy. This will require a nuanced approach that takes into account the evolving global economic landscape and the specific needs of the Korean context.