Restriction to invest in stock markets has helped the Police Mutual Aid Association (PMAA) log a positive 3.3% return on investment in the first four months of this year, Newsis reported on June 25 citing industry sources.
This performance is compared with that of other pension funds and mutual aid associations that have seen negative returns due to the stock market crash earlier this year, impacted by the coronavirus pandemic.
Korea Teachers’ Pension recorded a negative return of 2.22% in the first four months of this year. Direct and indirect investment in domestic stocks returned negative 10.84% and 10.74% respectively, and indirect investment in overseas stocks delivered negative 7.91% return. During the same period, the Government Employees Pension Service recorded a negative return of 4.55%.
The National Pension Service (NPS) also logged a negative 6.08% return on investment in the first three months of this year, weighed down by double-digit losses from equity portfolios. Domestic and global stocks returned negative 18.52% and 16.90% respectively after stock markets tumbled on fears over the coronavirus pandemic. NPS has not yet reported its April performance.
Market analysts attributed the better performance of PMAA to its lower portion of stock market investment in its portfolio compared to other institutions, Newsis reported.
PMAA is prohibited from raising the portion of its stock investment to more than 10 percent of its portfolio by its articles of association, though there is no limit to the amount of investment in such assets as bonds and alternative investments. Limiting the portion of stock investment under the articles of association is a rare case in the mutual aid association industry.
Market analysts said PMAA had set an upper limit on the portion of its stock investment, after its return on stock investment began to deteriorate in the early 2010s.
As of the end of April, the portion of PMAA’ s investment by asset group was 57% for alternative investments, 34.7% for bonds, 4% for stocks, and 10.6% at short-term funds. The rate of investment return is 5% for alternative investments, 4.1% for bonds and minus 5.2% for shares, according to Newsis.
Other mutual aid associations generally invest more than 10% of its portfolio to stocks. For example, Teachers’ Pension and Public Officials Benefit Association (POBA) invested 16.5% and 14% of their portfolio in domestic and overseas stocks respectively at the end of the last year. In addition, Scientists and Engineers Pension and Military Mutual Aid Association invested 13.6% and 9.2% of their portfolio in the stocks at the end of last year. All of these associations are suffering from sluggish returns due to the stock market’s sharp deterioration, analysts said.
“We had responded by a stop loss strategy before the coronavirus hit the country in late February,” said an official at PMAA to Newsis. “We plan to make stable returns focusing on alternative investments.” (Reporting by Jinwon Lee)