Risk Management

In order to rapidly adapt to the fast-changing investment landscape at home and abroad, the NPS closely monitors potential risks at all times through its multi-layered risk management systems. The Risk Management Committee, chaired by the CEO and comprised of CIO and external experts, develops risk management processes and standards, as well as adopts risk budgeting strategies, while risks associated with investments are addressed by the Public Market Risk Management Division and Private Market Risk Management Division. Internal controls are conducted by an independent Compliance Officer, and internal audits are carried out by an internal audit team. In addition, external audits are undertaken from time to time by third parties, including the Board of Audit and Inspection, the National Assembly, etc.

Risk Management Process

Risk Management Process
  • Planning
    National Pension
    Research Institute
    • Conduct actuarial projections
    National Pension Fund
    Management Committee
    • Establish fund management plans
    • Decide key risk-related policies
  • Policy
    National Pension Service
    Investment Management
    • Establish annual and monthly asset allocation plans
    • Develop risk management systems
    • Formulate ways to manage risks
    Risk Management Committee
    • Allocate risk tolerance levels by asset class
    • Develop standards for risk management
  • Monitoring
    Investment Departments
    • Conduct investment activities
    Public/Private Market Risk Management Divisions
    • Manage risk tolerance
    • Monitor and control risk factors
    Compliance Officer
    • Conduct internal controls
  • Risk management
    by risk factors
  • Risk management
    by asset class
  • Management of
    risk tolerance
  • Risk management
    for new investments
  • Pre-and-post review
    of risky events

Risk Measurement

Acceptable risk tolerance levels are set for each asset class based on expected returns and estimated risks to construct optimized portfolios within the set limits.

  • Benchmark Returns (%) and Asset Allocation for Each Asset Class are defined in annual fund management plans.
  • Target Return (%) is set to pursue a long-term return close to “Real GDP Growth (%) + CPI Inflation (%) ± Adjustments”.
  • Adjustments are determined by the National Pension Fund Management Committee with a view to achieving target returns within acceptable risk tolerance levels.
  • Risk Tolerance is subject to CVaR(α=0.05) ≥ -15% and determined by a combination of factors, including an expected minimum reserve ratio in five years, annual loss probability and shortfall risk.