NPS suffering from falling investment return

By Yoon Ja-young

The National Pension Service (NPS), which manages the 635 trillion won retirement fund of its 21.2 million subscribers, is suffering from falling investment return.

An internal crisis which led to the absence of top fund managers is behind the poor performance, adding to the concern of subscribers who have left their life after retirement in their hands.

According to Rep. Yoo Jae-jung of the main opposition Liberty Korea Party, the NPS sustained a 1.18 percent loss in its domestic stock investments in the first five months of the year.

The figure is very disappointing, given that the fund recorded a 2.41 percent in investment return from January to April.

Due to poor management, the value of domestic stocks owned by the fund dropped by 1.4 trillion won to 130.2 trillion won.

“When considering the 1.7 trillion won fresh investment into local equities, its loss amounts to 3.1 trillion won during the past five months,” the lawmaker said.

He said that the absence of top fund managers is the main cause for this.

“The executive fund director and chief investment officer (CIO) posts at the NPS Investment Management have been vacant for more than a year. It also has more than 30 fund managers fewer than it should have,” he pointed out.

The NPS has been without CIO since July last year following the sudden resignation of former CIO Kang Myoun-wook. It named an acting CIO, but he too offered to resign recently. The NPS currently has its investment strategy division chief acting as executive fund director & CIO.

Other key posts such as chiefs of the domestic alternatives and domestic equities divisions are also vacant due to resignations or dismissals.

Elite fund managers are quitting as they are not compensated enough when considering how much they can earn in the private sector while their responsibility of managing the huge fund is more than stressful.

The NPS was also at the center of the political scandal involving former President Park Geun-hye by backing the merger of two Samsung Group affiliates allegedly pressured by Cheong Wa Dae.

Its relocation to Jeonju, North Jeolla Province, also prompted young fund managers to quit. It planned to hire 38 in the first half of the year to make up for the vacancies, but ended up filling only 20 posts.

The Domestic stock market is not the only sector where NPS funds fared poorly. The overall investment return of the NPS was 0.49 percent, falling to near half from 0.89 percent a month ago, according to Rep. Yoo.

Some market watchers say the NPS seems to be putting more energy into adopting the stewardship code rather than pulling up investment returns.

“The NPS should first think about measures to responsibly manage the fund on behalf of the subscribers. However, it seems to be pondering over how to control businesses with the stewardship code,” said Hwang In-hak, chief researcher at the Korea Business Laws Institute.

The National Pension Fund Management Committee recently decided that NPS should adopt the stewardship code, or guidelines on how it should exercise its voting rights in management decisions of the companies where it holds a stake.

While the guidelines aim at pulling up shareholder value, some are concerned that the fund could be influenced by the government or politicians.

“Instead of focusing on the stewardship code, it should do its best to offer investment returns that fit the code,” the lawmaker said.

The fund under management by NPS is expected to increase to 1,000 trillion won in 2025.