The world’s largest pension funds are Norway’s Sovereign Wealth Fund (SWF), Japan’s Government Pension Investment Fund (GPIF), and Korea’s National Pension Service (NPS) by the size of their asset under management (AUM).


Let us have a look at their asset allocation portfolio to see what is going on.


South Korean National Pension Service (NPS) is the third largest national pension in the world with $560 billion in assets. It was founded in 1988 to ensure that all Koreans after retirement would have a stable source of income. Currently, a certain amount of money is automatically deducted from salary of employees and employers as a contribution to the NPS by law.


Korean National Pension Service asset allocation

Source: Korea NPS website


Korean NPS’s allocation shows increase in all asset classes with its AUM increasing more than 50% from 2014 to 2019. According to its goal, NPS aims to increase its asset allocation to alternative investment to 15% by 2024, and diversify risk and its reliance on domestic markets by investing more in foreign bonds and equities.




On the other hand, Japanese GPIF’s allocation shows a quite salient trend: decrease in domestic bond investment is increasingly replaced by domestic equity, foreign equity and foreign bond investment.


Japan government pension investment fund asset allocation

Source: Japan GPIF website


As returns on Japanese government bonds are one of the lowest in the world, some of which even dipped into negative yields, it is natural that GPIF is weaning off from domestic bonds. As the interest rate remains perennially low after the bubble burst in Japan, Japanese pension funds, along with many asset management and insurance companies, had to look out for foreign bonds and equities which yield higher return.


What is surprising, however, is GPIF’s increase in investment of Japanese foreign equities. One of two potential interpretations is that GPIF is required by regulatory requirement to invest in Japanese stock market. Another is that GPIF thinks that Japanese equity is undervalued, and hence a good investment opportunity.


In fact, Japanese households hold less than 10% of its assets in equity, but hold overwhelming amount of cash (53.3%) as at March 2019. This is in stark contrast with households in the US, where they have 34.3% of their assets in equity and only 12.9% in cash.


Household financial asset allocation

Source: Flow of Funds- Overview of Japan, the United States, and the Euro area, Bank of Japan, August 2019

Notes: (1) “Others” is the residual which is the remaining after deducting “Currency and deposits,” “Debt securities,” “Investment trusts,” “Equity,” and “Insurance, pension and standardized guarantees” from total financial assets




With government policies aimed at encouraging investment in Japanese domestic equity market in tandem with GPIF’s continuation of increasing their asset allocation to domestic equity, it may be an interesting opportunity for foreign investors to follow the trend.


On the other hand, Norway’s SWF shows very stable asset allocation throughout years and its composition has hardly changed. This shows stability of the fund’s ability to manage it funds and also a lack of investment within Norway due to its limited size of financial market (SWF investments in global equity market accounts for 1.4 percent of all of the world’s listed companies as at 2020).


Norway Sovereign Wealth Fund asset allocation

Source: Government Pension Fund Global Annual Reports


Three biggest national pension funds show quite interesting divergence in their strategic asset allocation. It would be interesting for investors to keep eye on changes in their portfolio to know where big money from these pension funds are flowing into to spot potential investment opportunities.


Currently, the big money from Japan and South Korea is flowing out from domestic bonds and flowing into foreign equities.


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