Korea Capital Market Institute: "In the Era of 1,000 Trillion Won National Pension, It Should Be Reorganized into a Fund Management Corporation"

Proposal from Public Pension Fund Specialist Manager 'National Pension Service'
"Need for Advanced Management and Establishment of Efficient Decision-Making System"

[Asia Economy Reporter Kwangho Lee] There has been a call for the National Pension Service to reorganize its governance structure into an internationally recognized professional management institution with an independent executive board (CxO). This is seen as a fundamental reform necessary to enhance long-term and stable investment returns.

The Korea Capital Market Institute stated in its report titled “Long-term Fiscal Projection of the National Pension and Reform of the Fund Management System” that “the nearly 1,000 trillion KRW scale of assets under management requires not just proportional quantitative expansion but qualitative changes such as portfolio composition and advanced investment strategies,” emphasizing that “advanced management necessitates an efficient decision-making system and a capable management organization,” highlighting the need for a professional management institution with a CxO.

The report pointed out that the fund’s highest decision-making body (Fund Management Committee), composed of government and subscriber representatives, lacks independence and expertise. It also evaluated the subordinate committees established to supplement this as inefficient “rooftop” decision-making structures. Because of this, the fund faces structural constraints that make it difficult to secure global management capabilities.

Nam Jae-woo, a research fellow at the Korea Capital Market Institute, said, “Fund management committee members find it difficult to respond to unfair market demands and pressures,” and “the experts appointed and whose term extensions are controlled by the government cannot oppose political judgments at the government ministry level.” He added, “In efforts and activities at the fund level to solve various practical challenges facing the National Pension, the governance of the highest decision-making body and the executive organization acts as a fundamental obstacle.”

The report also stressed that a fund management system reflecting institutional characteristics must be established from the initial stage of management, raising the need for an ‘ALM (Asset Liability Management)’ management system. It stated that fund management should establish governance that entrusts the Fund Management Committee, composed of experts, with ALM committees and reference portfolios as bridges.

Through such changes, inefficiencies arising from the massive reserves being managed by a single institution must be eliminated. This is especially urgent for successful overseas investments. Although the National Pension has been striving for over a decade to establish overseas offices in New York, London, Singapore, and other locations and actively expand the roles and staffing of local subsidiaries, it has faced difficulties due to organizational limitations as a quasi-governmental agency.

Researcher Nam said, “The public pension fund professional management institution, tentatively named ‘National Pension Fund Management Corporation,’ is an organization concept encompassing the supervisory Fund Management Committee and the corporation’s executive board,” adding, “If it becomes a dedicated management institution, revolutionary progress can be expected.”