Only Asset Management Firms Could Operate, Now Securities Firms Allowed to Participate
Public Service-Related Organizations Also Permitted to Entrust Investment Pool
From now on, securities firms will also be able to participate as weekly managers of the pension fund investment pool. Not only public institutions but also public service-related organizations will be able to entrust their surplus funds to the investment pool. Investment in domestic equity and bond exchange-traded funds (ETFs) by the pension fund investment pool will also be permitted.
On the 12th, at the National Policy Issues Ministerial Meeting combined with the Economic Affairs Ministerial Meeting, the government announced the "Pension Fund Investment Pool System Reform Plan" containing these details. The government plans to reform the operation system of the pension fund investment pool to allow securities firms to participate as weekly managers, improving the system from the existing asset management company-centered operation structure.
The pension fund investment pool is the first domestic outsourced chief investment officer (OCIO) system introduced in 2001 by the government to efficiently manage surplus funds from pension funds or public institutions by pooling them in one place. As of last year, 61 funds and 54 public institutions have deposited 62.1 trillion won.
Currently, the pension fund investment pool has been maintained as a system where asset management companies participate as weekly managers to manage funds. A Ministry of Economy and Finance official explained, "Since the establishment of the pension fund investment pool, there have been criticisms that the limited competition centered on asset management companies weakens incentives to improve performance," adding, "We expect competition to be revitalized once securities firms are allowed to participate." The government plans to allow securities firms to be selected as weekly managers if they have registered as general private collective investment businesses under the Capital Markets Act.
The reform plan also includes strengthening the evaluation criteria for weekly managers. Currently, the performance evaluation score standard for weekly managers of the pension fund investment pool is 67 points, but this will be raised to 70 points to increase the threshold for maintaining the status of underperforming managers.
The entrustment of investment pools in the public sector will also be expanded. In the future, funds managed by public institutions under laws and public service-related organizations under the Public Service Ethics Act (with an initial entrustment scale of 10 billion won) will be allowed to entrust their funds to the pension fund investment pool. Public service-related organizations refer to institutions or organizations that receive government investment, contributions, or subsidies or are entrusted to perform or act on government tasks. Currently, deposits to the investment pool are only possible for 67 funds under the National Finance Act and public institutions.
Investment in domestic equity and bond ETFs by the pension fund investment pool will also be permitted. For funds and public institutions with demand for managing dollar surplus funds, dollar short-term financial products (MMFs) will be introduced to reduce unnecessary currency exchange costs. This is to encourage the pension fund investment pool to actively invest in high-yield mid- to long-term assets. The government will establish a new asset allocation appropriateness evaluation item considering active mid- to long-term asset management when evaluating funds and simplify the review procedures for alternative investment products.
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