Korea Pension’s Bonds Prevent Loss as Stocks Tumble

By Saeromi Shin

March 4 (Bloomberg) -- South Korea’s National Pension Service avoided losses on its 236 trillion won ($152 billion) of assets last year as bond investments countered losses in the fund’s equities holdings.

The fund’s local bonds posted an 11 percent gain last year, while the value of its Korean equities declined 38 percent as stock markets were roiled by the credit turmoil, the Ministry for Health, Welfare and Family Affairs, which oversees the pension fund, said in an e-mailed statement today. The fund had a gain of less than 0.01 percent last year.

The performance was crucial as bonds, which made up the bulk of its portfolio, offset losses in a year when pension funds worldwide reported declining returns after a global rout wiped out more than $28 trillion in stock values. The California Public Employees’ Retirement System, the second-largest U.S. public pension fund, posted a 26 percent drop last year.

Korea’s fund “performed relatively well, and that’s quite natural given its really high portion of safer assets,” said Kim Yong Tae, a fund manager at Yurie Asset Management Co. in Seoul, which oversees the equivalent of $1.9 billion.

The MSCI World Index slumped 42 percent, its worst year on record, while the Standard & Poor’s 500 Index lost 38 percent. Government funds worldwide also posted losses. Temasek Holdings Pte, Singapore’s state-owned investment company, reported a 31 percent drop in investments to S$127 million ($82 million) in the eight months through Nov. 30.

Asset Allocation

Korea’s benchmark Kospi index fell 41 percent last year, its worst annual performance since 2000, when the technology bubble burst. The drop was the first for the measure since 2002. The index rose 0.3 percent to 1,028.94 as of 11:11 a.m. on the Korea Exchange today.

“It turned out that the fund didn’t post heavy losses, compared with overseas pension funds, even amid a difficult environment from the global financial crisis,” its statement today said.

National Pension, which was set up in 1988 and which covers private-sector employees and those who are self-employed, had posted returns of more than 5 percent between 2003 and 2007. Last year’s return was its worst in its two-decade history.

Domestic stocks will account for 17 percent of its assets by the end of 2009, up from an estimated 12 percent in 2008, the fund said in December. That’s a drop from its initial target of 20.3 percent, it added.

Bonds will make up 69.3 percent of assets in 2009, down from an estimated 77.7 percent in 2008, it said at the time, raising the allocation from an initial 60.4 percent.

“This year presents a great opportunity to pick up stocks at bargains, and the fund should steer its portfolio into gradually lifting risky assets in order not to miss out on returns when markets start to recover,” said Yurie Asset’s Kim.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net