Alternative investments by the National Pension Service (NPS) stood at 84.3 trillion won ($71.1 billion) as of December 31, 2019, comprising 11.4% of the total assets and up 7.7 trillion won from a year ago, according to the NPS 2019 Annual Reportreleased on August 11.
NPS has been expanding its investments in alternative assets such as real estate, infrastructure, private equities and overseas hedge funds since 2002, not only to increase its returns but also to diversify its risks. It strongly believes that alternative investments contribute to generating sustainable returns for the total portfolio with their distinct risk-return profile from traditional asset classes like stocks and bonds.
With an emphasis on investment diversification, allocations to foreign alternative assets expanded to 59.6 trillion won, or 70.6% of the total alternative investment portfolio as of the end of last year, up 7.3 trillion won year-on-year. Meanwhile, domestic alternative investments have also risen by 400 billion won to 24.8 trillion won, comprising 29.4% of the total alternative investment portfolio.
By asset classes, real estate investment registered 37.1% of the total alternative investment portfolio, followed by private equities (34.9%) and infrastructure (28.1%). Allocation to private equities rose by 3.9 trillion won from a year earlier, the largest increase among the alternative investment assets. And allocation to real estate and infrastructure increased by 2.9 trillion won and 900 billion won respectively.
By region, the domestic alternative investment reported an annual return of 7.08% (+0.46% points relative to the benchmark), while the global alternative investment posted an annual return of 11.09% (-0.01% points relative to the benchmark). Currency exchange gains from the strong US dollar contributed to delivering double-digit returns in the global portfolio over the last year. (Source: NPS 2019 Annual Report, August 11. Translated by Capital Connect)