Park Neung-hoo "Defending Fund Losses from Currency Risk through Adjustment of Call Proportion" (Comprehensive)

Overseas Stocks Near 50% of Total Fund Assets in 2024
"Efforts to Prevent Decline in Overseas Asset Value Due to Currency Fluctuations"

[Asia Economy Reporter Minji Lee] Amid the resurgence of the novel coronavirus infection (COVID-19) and increased market uncertainty in the United States and Europe, the National Pension Service has strengthened its response system to hedge against currency risk.

On the 30th, Park Neung-hoo, Minister of Health and Welfare and chairman of the National Pension Fund Management Committee (hereinafter referred to as the Fund Committee), held the 9th Fund Committee meeting at the Millennium Hilton Hotel in Jung-gu, Seoul, where the 'Improvement Plan for the National Pension Fund Foreign Exchange Management System' was reviewed and approved.

Minister of Health and Welfare Park Neung-hoo is delivering opening remarks at the National Pension Fund Management Committee held on the 30th at the Millennium Hilton Hotel in Jung-gu, Seoul. Photo by Kang Jin-hyung aymsdream@

According to the 4th fiscal projection and medium-term asset allocation, the National Pension Fund reserves are expected to exceed 1,000 trillion won in 2024, and with the continuous expansion of overseas investments, foreign assets are projected to account for more than 50% of the total fund assets. As overseas investments expand, the impact of exchange rate fluctuations on fund returns has increased, raising the need for active responses to asset value declines caused by depreciation of the currencies of countries where foreign assets are invested.

Accordingly, the Fund Committee discussed measures to actively manage the currency composition of foreign assets to hedge against fluctuations in the overall fund returns caused by exchange rate volatility. For example, the National Pension Service plans to increase the proportion of relatively safe currencies such as the US dollar or Swiss franc when financial markets are unstable, thereby reducing the overall portfolio volatility.

Additionally, the proportion of currencies with increased volatility due to temporary events such as Brexit or the European fiscal crisis will be reduced to defend against fund losses caused by currency depreciation.

The National Pension Service explained, "This 'Improvement Plan for the National Pension Fund Foreign Exchange Management System' involves adjusting the currency composition of foreign assets and is not expected to have any impact on the domestic foreign exchange market." When adjusting the currency composition, the Fund Committee will specifically set and carefully operate the types of currencies used for management, adjustment limits per currency, and overall adjustment limits.

Minister of Health and Welfare Park Neung-hoo stated, "As overseas investments of the National Pension Fund expand, strengthening the foreign exchange management system is indispensable," adding, "We will establish meticulous risk management measures to prevent public concerns from increasing."