NPS puts aside 2017 asset management plans after chief detained

  • 2016-12-29

South Korea’s National Pension Service (NPS) has indefinitely postponed a committee meeting set for Dec. 30 aimed at reviewing this year’s investment performance and outlining next year’s allocation to external managers, after its chief Hyung-pyo Moon was placed in emergency detention for further questioning over the NPS’ backing of the controversial merger of two Samsung Group units last year.

The detention of NPS chairman Moon, at around 1:45 am on Dec, 28, has disconcerted the $460 billion state fund and halted virtually all its investment decisions. After the independent counsel team took over investigations this month into the widening corruption scandal which led to the parliament’s vote for the impeachment of President Park Geun-hye, the world’s No. 3 pension fund became one of the first targets.

“Although the seize and search of the Investment Management’s head office was conducted for two days, investigators from the prosecution office are frequently visiting our office since then,” a source of the NPS’ Investment Management department told the Korea Economic Daily on Dec. 28. “And lawmakers belonging to the investigation committee for the Choi Soon-sil Gate and those under the parliament’s health and welfare committee required a massive amount of documents, so our normal investment operations came to a halt.”    

The independent counsel team filed a warrant request with a Seoul court on Dec, 29 to formerly arrest Moon before the 48-hour emergency detention period expires.

Special prosecutors accused Moon of pressing the NPS Investment Management department to back the merger of Samsung C&T Corporation and Cheil Industries Inc. in mid-2015 when he served as the welfare minister, at the instruction of President Park. Samsung is suspected of lobbying Park’s close friend Choi Soon-sil to win support from the NPS for the merger, in return for donating 3.5 trillion won ($2.9 billion) to Choi and her two non-profit foundations. Samsung denied the allegations.

NPS, under the welfare ministry, was a major shareholder in both Samsung companies at the time of the merger, and was believed to have a casting vote over the tie-up which was against the interests of Samsung C&T shareholders.

Wan-sun Hong, then the CIO of the NPS in 2015, reportedly admitted to special prosecutors that he was pressured to back the Samsung units’ merger by the welfare ministry, changing his previous testimony made to state prosecutors. Hong is being examined for charges of breach of trust. Samsung Electronics’ Vice Chairman and heir-apparent Jay Y. Lee has been banned from overseas trips for interrogation by special prosecutors.

It is known that some of senior welfare ministry officials testified to prosecutors that Moon had ordered the NPS’ Investment Management department to make a direct decision on the merger between the two Samsung units, not going through an external voting committee under the welfare ministry. Moon denied any wrongdoing in relation to the merger.

WHAT IS THE EXERNAL VOTING COMMITTEE? 

The external voting committee was set up in 2006 to help the investment management committee for the NPS, the top decision-making body of the pension fund, with tricky decisions. The committee is made up of non-experts of asset management, including those recommended by labor, business and regional organizations.

The external committee had dealt with only 14 cases out of the 25,000 cases handled by the NPS’ Investment Management committee between 2006 and 2015.

Regarding mergers, there were 60 cases in the past decade on which the NPS had exercised its voting right as a shareholder. There was only one merger case on which the external committee voted on behalf of the NPS’ committee: the tie-up of two SK Group units in June 2015.

The special prosecutor’s team alleged that the reason for the NPS not referring to the external committee for the merger case of Samsung C&T and Cheil Industries was to fulfil the alleged instruction from the presidential office to back the merger.

The ongoing investigations into the NPS as part of the corruption scandal are expected to speed up to find any basis supporting the bribery accusation made against President Park, as the Constitutional Court is studying the validity of the impeachment motion.

Moon, a Ph.D in economics of the University of Pennsylvania, was installed as the NPS chairman last December, only four months after he was sacked for poor handling of the outbreak of the Middle East Respiratory Syndrome (MERS) epidemic in 2015.

By Chang Jae Yoo and Dongwook Jwa

yoocool@hankyung.com