🚨 National Pension Fund's Overseas Investment Expansion: Concerns About Being a 'Currency Negotiation Trigger'
Today Korean Economic News | 2025.04.30
📌 National Pension Fund's Increasing Overseas Investments Becoming a Variable in Currency Negotiations with the US
💬 While the National Pension Fund recorded a high return of 34% on its overseas investments last year, it has become a controversial issue in currency negotiations between Korean and US treasury authorities. As concerns have been raised that the National Pension Fund's large-scale dollar purchases have fueled the Korean won's weakness, the US may point to this as a problem in Korea's currency policy. Experts emphasize that although the possibility of Korea being designated as a currency manipulator is low, the pension fund issue could be used as leverage in trade negotiations, requiring a sophisticated response from the government.
1️⃣ Easy Understanding
The National Pension Fund's overseas investments are generating high returns, but there are concerns that this could become an issue in currency negotiations with the United States. Let's look at this complex issue in simple terms.
The National Pension Fund is money saved for the retirement of Korean citizens, currently managing massive assets of about 1,050 trillion won. For efficient management of these funds, the National Pension Fund invests not only domestically but also overseas, and has recently significantly increased its foreign investments. As of 2025, the National Pension Fund's overseas investment ratio is about 45%, a significant increase from 30% five years ago.
These overseas investments recorded a high return of 34% last year. In particular, investment returns greatly increased as the US stock market boomed, and there was also an effect where asset values measured in dollars increased more when converted to won as the Korean won's value fell (won-dollar exchange rate rose).
But these large-scale overseas investments could become problematic. The National Pension Fund needs to exchange won for dollars to invest overseas, and in this process, large-scale dollar purchases occur, which some point out has been one cause of the Korean won's value decline (won-dollar exchange rate rise).
Currently, Korea and the United States are facing negotiations over currency issues. The US may suspect that Korea is intentionally keeping the won's value low to enhance export competitiveness, and the National Pension Fund's large-scale dollar purchases could possibly be pointed to as evidence.
Experts believe that while the possibility of Korea actually being designated as a currency manipulator is low, they emphasize that the pension fund issue could work unfavorably in trade negotiations with the US, requiring careful government response. It's important to find balance between the stable management of retirement funds for citizens and international economic relations.
2️⃣ Economic Terms
📕 National Pension Fund Overseas Investment
National Pension Fund overseas investment refers to investing National Pension Fund assets in foreign financial markets rather than domestic ones.
- It invests in various countries' stocks, bonds, real estate, etc. to diversify investment risks and increase returns.
- It's a strategy to overcome limitations of the domestic market and utilize global investment opportunities.
📕 Currency Manipulator
A currency manipulator refers to a country that artificially keeps its currency value low to enhance export competitiveness.
- The US Treasury Department can designate currency manipulators annually by evaluating major trading partners' currency policies.
- Designation criteria include: ①trade surplus with the US ②current account surplus ③scale of foreign exchange market intervention.
📕 Won Weakness
Won weakness is the phenomenon of the Korean won's value declining against major foreign currencies like the US dollar.
- It's advantageous for export companies but has side effects such as rising import prices and increased foreign debt repayment burden.
- It occurs due to various factors including foreign investor fund outflows, trade balance deterioration, and geopolitical risks.
📕 Trade Negotiations
Trade negotiations are discussions about rules, tariffs, and non-tariff barriers that define trade relationships between countries.
- They take place in bilateral (between two countries) or multilateral (among multiple countries) forms, with resolving trade imbalances as a major agenda.
- They cover a wide range of economic issues including currency policies, market opening, and intellectual property protection.
3️⃣ Principles and Economic Outlook
💡 National Pension Fund's Overseas Investment Performance and Currency Impact
Let's examine the results of the National Pension Fund's overseas investment expansion and its impact on exchange rates.
First, the National Pension Fund's overseas investments are contributing to portfolio diversification and higher returns. The National Pension Fund currently manages assets of about 1,050 trillion won, of which about 45% (470 trillion won) is invested in overseas assets. This is a significant increase from 30% five years ago. The main purposes of expanding overseas investment are diversifying investment risks and improving profitability. In fact, the National Pension Fund's overseas investment return last year was 34%, significantly higher than domestic investment returns (15%). In particular, the US stock market boom along with the won's weakness contributed greatly to improving returns through foreign exchange gains. The National Pension Fund plans to expand its overseas investment ratio to 50% in the long term, which can be seen as an inevitable choice considering the limited scale of the domestic market and the low-growth trend.
Second, large-scale overseas investments can have structural impacts on the foreign exchange market. Significant dollar purchases occur when the National Pension Fund converts won to dollars for overseas investment. Last year, the National Pension Fund's new overseas investment was about 40 trillion won, which generated demand for about 30 billion dollars in the foreign exchange market. This structural dollar demand can act as a factor weakening the won. In fact, over the past two years, the won-dollar exchange rate has risen from the 1,150 won range to the 1,380 won range, and there is analysis that the National Pension Fund's dollar purchases had some influence in this process. However, since exchange rates are determined by various factors such as trade balance, foreign investor fund flows, and global dollar strength, it's difficult to evaluate the impact of the National Pension Fund separately.
Third, the National Pension Fund's overseas investments are closely related to the fund's sustainability. With the National Pension Fund projected to be depleted by 2057, improving returns is an important task. As the domestic market is limited in size and continues to show low growth and low interest rates, expanding overseas investment is an inevitable choice in terms of the fund's long-term profitability. It's particularly important to diversify the portfolio not only into developed markets like the US and Europe but also emerging countries and alternative investments (real estate, infrastructure, etc.). The National Pension Fund's overseas investments focus on long-term stability and sustainability rather than short-term returns, which is an appropriate approach considering its role as an institution responsible for citizens' retirement funds.
The National Pension Fund's overseas investments contribute to portfolio diversification and improved returns, but can act as a factor weakening the won through large-scale dollar purchases. However, this should be seen as an inevitable choice for the fund's sustainability and the National Pension Fund's fundamental mission of guaranteeing citizens' retirement. What's important is a strategic approach that minimizes impact on exchange rates by adjusting the pace and method of overseas investment expansion according to market conditions.
💡 US Currency Policy and Trade Pressure
Let's analyze the US approach to currency policy and the possibility of trade pressure on Korea.
First, the Trump administration is taking an active stance on resolving trade imbalances. Since taking office, President Trump has shown strong determination to resolve trade deficits based on the "America First" policy. In particular, the trade deficit with Korea in 2025 amounts to about 30 billion dollars, making it a major focus for the US. The US Treasury Department evaluates three criteria for designating currency manipulators (①trade surplus with the US over 20 billion dollars ②current account surplus over 3% of GDP ③continuous intervention in the foreign exchange market), and currently Korea only meets the first criterion. However, the US is also paying attention to structural factors that affect currency policy beyond official criteria, and in this process, the National Pension Fund's large-scale dollar purchases may be pointed out.
Second, the National Pension Fund issue could emerge as a major agenda in currency negotiations. The US may argue that the Korean won's weakness is due to structural and institutional factors rather than simply market flows. The fact that the National Pension Fund's overseas investment expansion is based on government policy, and its large scale, could be logical grounds for the US. Although asset allocation of the National Pension Fund is decided by the fund management committee, the US may interpret this as indirect currency intervention since this committee is a government agency. In particular, the Trump administration is likely to link currency issues with other trade issues such as tariff negotiations and auto export regulations.
Third, Korea should emphasize that it maintains currency policies that comply with international standards. Korea has adopted a free-floating exchange rate system since the 1998 foreign exchange crisis, and there is no evidence that it artificially manipulates exchange rate levels. The National Pension Fund's overseas investment is for the public purpose of stable management of retirement funds, and currency impact is just a secondary result. Also, since Korea transparently discloses its foreign exchange market intervention details, the possibility of being designated as a currency manipulator can be considered low. However, in preparation for the possibility of the US using this issue as a negotiation card, there is a need to logically explain that the National Pension Fund's overseas investment is a portfolio strategy that complies with international standards.
The US may apply various trade pressures including currency issues to resolve trade imbalances, and in this process, the National Pension Fund's overseas investment may emerge as an issue. While Korea's possibility of being designated as a currency manipulator is low, it should prepare a clear position and logic on the National Pension Fund's overseas investment strategy in preparation for the possibility of this issue being linked to other trade negotiations.
💡 Korean Government's Response Strategy and Tasks
Let's explore the Korean government's response strategy to currency negotiation and National Pension Fund overseas investment issues.
First, the legitimacy and transparency of the National Pension Fund's overseas investments should be strengthened. It should be made clear that the National Pension Fund's overseas investment is a reasonable strategy for the fund's sustainability. There is a need to logically explain the inevitability of overseas investment, including the limited size of the domestic market, concerns about fund depletion due to population aging, and risk management through global diversified investment. Efforts to increase transparency in the investment decision process and minimize impact on the market are also necessary. For example, considerations could include distributing large-scale currency exchanges to avoid market shocks, or communicating investment plans to the market in advance. It's also important to emphasize that the National Pension Fund's overseas investment is not targeting specific countries but follows a global asset allocation strategy.
Second, a systematic response logic to currency negotiations with the US must be prepared. Korea needs to emphasize that apart from the trade surplus with the US, it does not meet the criteria for designating currency manipulators. In particular, it should highlight that the current account surplus has decreased to less than 3% of GDP, and that foreign exchange authorities' market intervention is limited. It should also explain that the won's weakness is due to various market factors including global dollar strength, trade balance changes, and foreign investor fund flows, apart from the National Pension Fund's dollar purchases. Continuously disclosing foreign exchange market intervention details and strengthening cooperation with international organizations such as the International Monetary Fund (IMF) to increase currency policy transparency would also be an effective approach.
Third, separate responses to currency issues and other trade matters are necessary. As the US is likely to link currency issues with other trade issues such as automobiles and steel, clear response logic should be prepared for each matter. In particular, a principled position should be maintained that exchange rates are determined by the market and not something the government can manipulate. At the same time, a flexible approach that partially accommodates US concerns is necessary. For example, considerations could include adjusting the pace of the National Pension Fund's overseas investment expansion, increasing imports of US goods, and enhancing bilateral economic cooperation through increased investment in the US. It's also important to manage conflicts in advance by activating regular economic dialogue channels between the two countries.
The Korean government needs a strategy that strengthens the legitimacy and transparency of the National Pension Fund's overseas investments, prepares systematic response logic to currency negotiations with the US, and responds separately to currency issues and other trade matters. Ultimately, it must pursue a balance between the National Pension Fund's original purpose of stable management of citizens' retirement funds and maintaining mutually beneficial economic relations between Korea and the US.
4️⃣ In Conclusion
The expansion of the National Pension Fund's overseas investments is an inevitable choice for the fund's sustainability and improved profitability, but it may emerge as an issue in Korea-US currency negotiations. Last year, the National Pension Fund's overseas investments recorded a high return of 34%, largely contributed to by the US stock market boom and foreign exchange gains due to the won's weakness. However, concerns have been raised that the National Pension Fund's large-scale dollar purchases have acted as a structural factor in the won's weakness, increasing worries that the US may point to this as a problem in Korea's currency policy.
The Trump administration, based on the "America First" policy, is showing strong determination to resolve trade imbalances, and in a situation where the trade deficit with Korea amounts to about 30 billion dollars, there is a possibility of using currency issues as a means of trade pressure. Although Korea does not meet all the criteria for designation as a currency manipulator, the fact that the National Pension Fund's overseas investment is based on government policy could be used as a negotiation card by the US.
In response, the Korean government must strengthen the legitimacy and transparency of the National Pension Fund's overseas investments and prepare systematic response logic explaining that the won's weakness is due to various market factors. It also needs to explore ways to strengthen economic cooperation between the two countries while responding separately to currency issues and other trade matters.
In the end, this issue is a task that requires finding a balance between the National Pension Fund's original purpose of stable management of citizens' retirement funds and maintaining mutually beneficial economic relations between Korea and the US. Rather than succumbing to short-term diplomatic pressure, a wise approach that considers both long-term national interests and the interests of National Pension Fund subscribers is needed at this point.