NPS reasonably evaluates returns on alternative investments, report says Report points out pension fund needs to improve performance disclosure

Translated by Ryu Ho-joung 공개 2021-04-09 08:09:35

이 기사는 2021년 04월 09일 08:04 더벨 유료페이지에 표출된 기사입니다.

The National Pension Service of South Korea (NPS) has reasonable processes in place to evaluate returns on its alternative assets, said a report from the National Pension Research Institute.

Unlike traditional stocks and bonds whose performance is based on market value, returns on alternative assets, such as private equity, real estate and infrastructure, are measured at fair value, which refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

The report compared NPS’ fair value processes with those of its global peers including California Public Employees' Retirement System, Canada Pension Plan Investment Board and Government Pension Fund of Norway, and concluded that the state pension fund has been evaluating the fair value of alternative investments in a reasonable manner.

According to data for a certain investment period, funds with strong performance have tended to underestimate the fair value of alternative assets, while those with weak performance have tended to overestimate the fair value, the report explained.

The report also pointed out that the pension fund needs to improve its performance disclosure, comparing it with global peers that disclose detailed performance information using the Global Investment Performance Standards, or GIPS.

“With its alternative portfolio expected to continue to grow, NPS needs to monitor the fair value of its alternative assets and disclose information on a regular basis to increase credibility,” said the report. “A database of all the related information should be set up too.”

The pension fund has been doubling down on alternative investments, especially in overseas markets, in search of higher returns. This is in line with broader trends globally.

NPS conducts the fair value evaluation in September every year and updates its system with the results in December. The pension fund had 833.7 trillion won ($736.8 billion) in assets under management at the end of 2020, with alternative investments accounting for 13.2% of the total assets. It plans to increase its allocation to the asset class to 15% by 2025. (Reporting by Hee-yeon Han)
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