Operators of pensions say no to bonds

Korea’s public pension operators plan to reduce their holdings of bonds and expand investment in riskier instruments such as stocks in a bid to bolster asset management earnings, sources said yesterday.

The move came as returns from bond investments, which accounts for more than half of local public pension operators’ assets, are expected to fall as interest rates remain low here.

The central bank froze the key interest rate for the second straight month yesterday in the face of global economic uncertainty and the presidential election next week.

“While bond investments account for 59 percent of our assets, their return is expected to hover around 3 percent in 2013, falling by half from this year,” an official from the Korea Teachers Pension said.

The National Pension Service, the world’s fourth-largest pension fund, which operates 386 trillion won ($360 billion), plans to reduce its portion of bond assets to 60 percent by 2017 from 71.1 percent at the end of 2011.

Meanwhile, the NPS plans to increase the portion of stocks and alternative investments to 30 percent and 10 percent, respectively, market watchers said. Their proportion stood at 25.8 percent and 7.8 percent at the end of September. Alternative investments include assets such as property.

“Increasing the portion of riskier assets will allow [pension operators] to pay out more returns to subscribers by enhancing expected earnings,” said Nam Chae-woo, a researcher at the Korea Capital Market Institute.

Other pension operators such as the Military Mutual Aid Association and Korea Post also plan to reduce their dependency on bond investments, market watchers said.

Yonhap