NPS concerned over loss of trust; CIO calls for going back to basics

  • 2017-01-03

The ongoing investigations into the National Pension Service (NPS) by special prosecutors have crippled the South Korean fund’s operations, and its chief investment officer on Jan. 2 voiced concerns about growing distrust of its investment management in the aftermath of the probes. 

As the NPS has been at the center of the investigations by the independent counsel team into the country’s sprawling corruption scandal, some of its senior investment managers have been summoned for questioning on a daily basis, or banned from overseas trips. 

“The biggest concern is deepening distrust of (NPS’) investment management from inside and outside our organization,” its Chief Investment Officer Myoun-Wook Kang was quoted as saying recently. 

“In this difficult situation, we need to be more alert and get back to basics,” Kang said in an executive meeting on Jan. 2, according to the MoneyToday report. He also stressed the importance of encouraging NPS’ employees and strengthening their fellowships, in response to a series of departures of experienced managers last year.

After NPS Chairman Hyung-pyo Moon was arrested last week on charges of ordering the NPS to back the merger of two Samsung Group units in 2015, the state fund has postponed a committee meeting aimed at reviewing last year’s investment performance and outlining this year’s asset allocation. In 2015, Moon was the health and welfare minister. 

NPS may also need to delay reorganization scheduled for next month, while it carried out a limited reshuffle of senior in-house fund managers on Jan. 2 to replace the investment strategy head who quit last month 

The independent counsel team is closely looking into the NPS’ decision to support the merger between Samsung C&T Corporation and Cheil Industries Inc. According to an NPS source, special prosecutors are now able to rewrite the minutes of NPS’ investment committee meeting on a minute-by-minute basis, where the pension fund decided to approve the combination of the two Samsung companies in 2015. 

Almost all of the 12 committee members who attended the meeting are now banned from overseas travels, without knowledge about when their travel bans will be lifted.  

Rumors within the NPS are swirling that some of NPS’ senior managers, team leaders and employees underwent cross-examination at the special prosecutors’ office because of their conflicting testimonies. 

“I have been questioned for average 14 hours a day for a week,” one of the NPS source told the Korea Economic Daily. “When I’m back to office, a mountain of documents to be signed piled up. I can’t concentrate at all.” He has been called as a witness into the independent counsel office almost every day.  

Market observers caution that the tight scrutiny of the NPS may force the world’s No.3 pension scheme to steer clear of potentially controversial or risky investments. 

“Along with the office relocation to Jeonju, skepticism is spreading in the NPS about whether it will be able to find proper investment targets,” an unnamed investment banking source was quoted by South Korea’s Financial News. 

Separately, NPS released its 2016 investment return on domestic equities on Jan. 2. The 5.64% return from Korean stock investments last year marked the best performance since it reported a 10.21% return for 2012. The improved performance was attributable in large part to the shift into passive strategy from active management, after CIO Kang took office early last year.

By Dongwook Jwa

leftking@hankyung.com

<Edited by Yeonhee Kim>