NPS on Recovery Path after Q2 Loss amid Tight Monetary Policy and Prolonged Geopolitical Uncertainty

- In the face of falling equity markets and rising interest rates, NPS performed relatively well compared to global peers -

□ The National Pension Service Investment Management, a dedicated fund management arm of the National Pension Service (NPS; Interim Chairman &　CEO and Executive Director for Planning, Jungbae Park), announced on August 29, 2022 that the National Pension Fund had a value of KRW 882.7 trillion as of June 30, 2022 and recorded a preliminary return of -8.00% in the first half of the year.   

  ○ By asset class, domestic equities returned -19.58%, overseas equites -12.59%, domestic fixed income -5.80%, overseas fixed income -1.55% and alternative assets 7.25%*.
* Based on money-weighted rates of return  

□ The negative returns were driven primarily by widening losses from global equities and fixed income falling in tandem.   

  ○ Such sharp market declines have not been seen in decades since stagflation, marked by slow economic growth and rising prices, in the late 1970s.

  ○ The long war in Ukraine, worsening supply chain disruptions, high commodity prices, soaring inflation and the Federal Reserve’s aggressive monetary policy tightening all had a negative impact on public market returns.   

  ○ The continued uncertainty over interest rates and inflation fueled by tighter monetary policies by central banks dampened the sentiment of financial market participants worldwide, adversely affecting the performance of the NPS’s equity and fixed income portfolios.  

  ○ Foreign exchange gains arising from the strong U.S. dollar contributed to making up for some losses in overseas assets.

□ During the volatile period where a steep plunge in global equity markets resulted in lower returns for major global pension funds, NPS achieved relatively good results compared to global peers that disclosed their investment results for the January-June period.  

□ Meanwhile, equities rebounded in recent weeks following the previous quarter’s significant declines, while bond markets became stable on the back of a slowdown in the pace of an increase in interest rates.  

  ○ In line with this trend, NPS recovered to record a preliminary return of around -4% as of August 25, 2022.

 □ “Amid the turmoil in global financial markets, we will focus on risk management to weather the increased market volatility,” says an official of NPS. “We make every effort to capture the best investment opportunities to enhance returns when the global economy is fully recovered.”