Pension fund loses 5 trillion won on ‘Brexit’

The unexpected “Brexit” might not have had a long impact on the Korean stock market but it presumably affected the investment that the Korean pension agency has made as it reportedly lost nearly 5 trillion ($4.3 billion) won between June 23 and 28.

A study by Jung Choun-sook, lawmaker of the opposition Minjoo Party, on Tuesday claimed that the valuation of stock investments that the National Pension Fund has both home and abroad shrunk from 169.5 trillion won on June 23, the day before the Britons voted in favor of leaving the European Union, to 164.5 trillion won on June 28. When breaking down the valuation of the stock investment that the NPS has on the Korean market, it shrunk 2.39 trillion won to 93.9 trillion won while investment in overseas stock shrunk 2.57 trillion won to 70.6 trillion won during the same period.

During the same period, investments on bonds have increased from 302.4 trillion won to 304.4 trillion won. Domestic bond investment has increased from 279.6 trillion won to 281.5 trillion won while overseas investment on bonds has increased 91.1 billion won to 21.7 trillion won.

The lawmaker urged the need for the NPS to change its investment strategy to cut its investments in risker assets that have higher exposures to unexpected shifts in the global market.

“The investment risks on equities have risen since Brexit whereas the risks on safer assets such as bonds reduced,” said the lawmaker. “Yet the NPS plans to further expand its investments on stocks while cutting back on safer assets.

“The impact of the faraway ‘Brexit’ has brought upon massive losses on the nation’s pension fund. As we have seen from the influence of the “Brexit,” the more we increase investment in stocks with higher risks, the more risks our public’s retirement fund will be exposed to risk.”

According to the NPS, as of 2015 32.2 percent of the investments are invested in stocks whereas 56.6 percent are invested in bonds.

The NPS’s management committee this month announced that it will take extra caution on its new investments overseas especially in Europe and the U.K. as the uncertainties in the global market have deepened since “Brexit”.

“We will monitor full time on market movements and possible changes in situations and if needed report immediately to the pension management committee so that decisions including readjustment on strategic asset allocation and management plans can be made,” said Chung Chin-youb, minister of health and welfare who also heads the pension fund management committee. “We will secure safety in managing the fund and furthermore work to secure stable and long-term profit.”

The committee at the meeting this month said last year’s profit on managing the pension fund was 4.57 percent with profit reaching 21.7 trillion won. The profit is relatively successful when compared to other global pensions including the Canada Pension Plan Investment Bond with a 3.7 percent gain and Japan’s Government Pension Investment Fund with 1.8 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]