The National Pension Service (NPS) announced on Feb. 15 that it has appointed Kang Myun-wook, former president of Meritz Asset Management Co, as chief investment officer (CIO) to manage the fund management office of the country’s biggest investor.
According to the NPS, Kang will succeed the former CIO Hong Wan-sun, who resigned from his office three months ago over disputes he had with former NPS Chairman Choi Kwang while they were still in office.
Health and Welfare Minister Chung Chin-youb named Kang as the new CIO on Feb. 15 upon a recommended by new National Pension Service Chairman and CEO Moon Hyung-pyo.
CIO Kang will lead the fund management office of the world’s third-largest pension fund with assets of 500 trillion won ($413.9 billion) under management for two years starting Feb. 16.
The new CIO said he will take risk management seriously and maintain order in the headquarters, which has become loose with the resignation of his predecessor three months ago. Expectations run high for the new Chief Investment Officer as he takes charge of the of the 500 trillion won fund. The CIO is often called, “The President of Funds,” referring to the size of the fund available for investment.
Industry sources are closely monitoring how he handles the aftermath of the resigning of both NPS Chairman Choi Kwang and CIO Hong from the NPS, taking responsibility for the results of their feud over the management of the fund. The fund will continue to grow and is expected to reach around 2,500 trillion won by 2043, but the management system of the fund was established when the fund amounted to only 40 trillion won. Industry sources said the management system is overdue for reform to take care of the much bigger fund.
The industry sources also feel that the new CIO and the NPS chairman should get along well, especially on such matters such as setting up an independent company to manage the fund and others to best manage the fund.
At his first media session after taking the office, NPS Chairman Moon said safety and profitability will continue to be the main concerns in managing the fund. What he meant was that the fund should not be politically manipulated as part of politicians’ election pledges. The fund should, however, be open to its uses as part of broad pledges for diverse public welfare projects, he added. As to the suggestion that the NPS should cover around 50 percent of the subscribers annual income from the current 40 percent, Moon said they should have considerations for the next generation of pension earners. He said there ought to be something to replace the increased spending of the NPS fund if the coverage is raised to 50 percent of a subscriber’s income, quoting from an old saying “No lunch is free, as some one has to pay for it.” The former Health and Welfare minister was opposed to boosting the coverage of the pension payment when he was in office.
As to turning the NPS’s Fund Management Headquarters into an independent corporation, he indirectly expressed his agreement by saying that fund management experts are needed to run it with transparency. When he was the Health and Welfare minister in 2014, the ministry brought a number of ideas to separate the Fund Management Headquarters from the NPS, among government plans to reform the NPS.
CIO Kang worked for a number of investment firms before he headed Meritz Asset Management as CEO from 2008 until 2013. He holds a bachelor’s degree from Sungkyunkwan University in Seoul, Korea.
South Korea’s state-run National Pension Service (NPS) is poised to pour more than $40 billion into overseas equities and bonds in the next five years, according to reports from Seoul.
The 489 trillion won fund is by fair the biggest investor in the Seoul market, owning 8.8 per cent of all Korean equities.
However, it is set to increase its allocation to offshore assets from 20 per cent to 30 per cent to sidestep low interest rates and weak growth in its domestic market, according to MandateWire, a research service from the Financial Times.
A local media reported that the NPS would raise its allocation to overseas equities 4 percentage points to 20 per cent by 2020, while cutting its domestic equity exposure 2 points to 18 per cent. Simultaneously, it would cut its domestic bond holdings from 54.8 per cent to 42-44 per cent.
The newspaper quoted an unnamed NPS official as saying that the fund had “no choice” but to look overseas, given that South Korea’s interest rates were low, with the base rate 1.75 per cent, and set to fall further, while the economy “won’t likely show signs of any meaningful turnaround for the time being.”
The move would be likely to put further upward pressure on already elevated bond and equity prices elsewhere.
If the NPS buys overseas assets in line with its existing exposures, the bulk of the money will be invested in the US and Europe, rather than its neighboring Asia-Pacific region.
At present, North America accounts for 50.3 per cent of the fund’s Won60.6tn overseas equity portfolio and Europe 28.4 per cent, with Asia-Pacific constituting just 10.4 per cent, Japan 7.3 per cent, Latin America 2.9 per cent and Africa and the Middle East 0.7 per cent.
Its Won92.7tn domestic equity portfolio, which is in line to be cut, is heavily weighted towards the electrical and electronic equipment and transport equipment sectors,with Samsung Electronics, Hyundai Motor and SK Hynix its largest positions.
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