Extending the Scope of ALM to Social Investment: Investing in Population Growth to Enhance Sustainability of the Korean National Pension Service

Woong Bee Choi, Dongyeol Lee and Woo Chang Kim
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Woong Bee Choi: Investment Policy Division, National Pension Research Institute of Korea, Jeonju-si 54870, Korea
Dongyeol Lee: Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Korea
Woo Chang Kim: Department of Industrial and Systems Engineering, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Korea

Sustainability, 2021, vol. 13, issue 1, 1-14

Abstract: The Korean National Pension Service (NPS) is a partially funded and defined-benefit system. Although the accumulated Fund of the NPS has been increased gradually, this large fund is concerned about depletion in the near future due to the unprecedented aging population and the low fertility rate. In this study, we have developed an asset-liability management (ALM) model that endogenizes variables which were regarded as being exogenous by including them in investable assets. We present the multistage stochastic programming (MSP) formulation incorporating the population structure as a variable that is new to ALM. The optimal portfolio encompassing the investment in raising the fertility rate is obtained. Extending the scope of ALM to social investment is a new approach that has not been attempted in other ALM studies. We demonstrate that socially driven investments can also be a good investment asset in which the NPS should consider to invest.

Keywords: national pension service; asset-liability management; social investment; sustainability; population growth; multistage stochastic programming (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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