The South Korean government is expected to push ahead with the plan to move Korea Investment Corporation (KIC) and other public agencies to provincial cities after the ruling party won an unprecedented landslide victory in April 15 general elections.
The Democratic Party took a majority of the 300-seat parliament by winning 180 seats, with ex-National Pension Service’s chief executive Sung-joo Kim elected from a district in Jeonju to which he had led the relocation of the NPS investment management’s head office in 2017.
During his election campaign, Kim had pledged to move the headquarters of sovereign wealth fund KIC, Korea Venture Investment Corp (KVIC) and Specific Post Office Pension Service Agency to his district in the city of a 655,000 population to make it a global financial center.
KVIC manages 5.6 trillion won ($4.6 billion) in assets through funds of funds to invest in startups. Specific Post Office Pension is a pension scheme for employees of privately-managed post offices.
South Korea has moved central government ministries and 153 public agencies, including NPS and energy utility KEPCO, out of Seoul since 2004 under the special act on balanced growth.
Just before the April 15 elections, ruling party leader Hae-chan Lee reaffirmed the plan to move 122 public institutions to other regions in a second round of relocation which was one of President Moon Jae-in’s core election pledges in 2017.
Korea Development Bank, Export-Import Bank of Korea, Korea Deposit Insurance Corp., Korea Trade Insurance Corp., Industrial Bank of Korea and Korea Center for International Finance are also included in the list.
FOLLOWING IN THE FOOTSTEPS OF NPS?
The planned relocation may result in outflows of talent. NPS had seen a total of 107 investment staff quit since 2016 when the relocation to the small city was decided until the first half of 2019.
The number of voluntary leavers has increased to 30 per year on average since 2016, compared to around 10 until 2015.
They are being replaced with less experienced workers. The work experience of the pension fund’s new investment staff averaged 6.1 years in 2019, down from 9.7 years in 2014.
From last year, it began hiring those with less than three years of work experience to fill the vacant positions.
“It used to be a workplace to prove capability for financial industry professionals, but those days are gone. Competition for jobs at KIC and other highly-ranked institutions will be significantly lowered,” said an asset management company source.
Given the election results, hopes for the NPS opening a Seoul office would be dashed. The welfare ministry’s advisory group for the NPS had proposed a Seoul office be set up for the $610 billion fund to stem the outflows of talent, but the former NPS CEO Kim had rejected it when he was in office.
Since the move to Jeonju, it has become a routine for senior NPS officials to make a trip to Seoul to meet asset managers and visiting global investment managers such as Blackstone, Carlyle and KKR.
Adding to the inefficiency, with the introduction of the 52-hour workweek system in 2018, its computers are automatically turned off after work hours.
“In the market environment that is becoming professionalized and globalized, (South Korea’s) financial institutions are being heavily swayed by political reasons,” said a former NPS official.
In 2019, NPS achieved its strongest investment return of 11.31%, but the result was overshadowed by the KIC’s 15.39% return.
Compared to benchmarks, NPS’ annual returns fell to a negative 0.63% in 2018 versus 0.86% in 2017. Between 2013 and 2017, its return averaged a negative 0.06%.
“The biggest problem is that the NPS’ fund managers, who need to compete with global pension funds day and night and improve abilities, are getting accustomed to working moderately according to the situation and unwilling to take risk,” ” a source familiar with the NPS told the Korean Investors. “Relocation of additional financial institutions’ headquarters will lead to their downward standardization.”
By Jung-hwan Hwang
<Edited by Yeonhee Kim>