Silence over NPS chief investment officer’s tenure raises eyebrows within the financial community

  • 2020-07-30

Silence over the tenure of incumbent chief investment officer (CIO) at the National Pension Service is stirring up talk within the global asset management community. The CIO title is currently held by Hyo-joon Ahn, whose two-year term is set to end on October 8. Under the National Pension Act and internal guidelines, a CIO can serve a two-year term and consecutively serve another year based on his or her performance.

With about two months remaining, the NPS and its overseer Ministry of Health and Welfare have not determined whether to extend Ahn’s term or to search for the next potential chief investment officer, according to industry sources. The NPS generally takes at least three months to appoint a new official.

The investment industry is closely watching the situation given that the National Pension Service which manages over 700 trillion won ($587.8 billion) already lacks a chief executive officer. Sung-joo Kim, the former CEO left the pension fund earlier in January to run for a seat in the National Assembly. This could be one of the reasons for the hiccup in the process since the chief executive officer is in charge of appointing and approving the chief investment officer.

Since April, there have been talks that Yong-jin Kim, the former vice-minister at the Ministry of Economy and Finance, would fill in the shoes of the chief executive officer but nothing has yet to happen.

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Hyo-joon Ahn (left) receives CIO appointment letter from former NPS CEO Sung-joo Kim. /Courtesy of NPS

NPS manages the country’s retirement funds worth almost 725 trillion won as of April. It is the third-largest pension fund in the world alongside Japan’s Government Pension Investment Fund (GPIF) and the Government Pension Fund of Norway (GPFG).

“The extended leadership vacuum at the pension fund has fueled rumors such as the government having already selected a potential chief investment officer on their terms,” said an investment industry source familiar with NPS matters. The source added, “We need a normal decision-making process for the CIO appointment to ensure that NPS investments are managed stably and safely.”

In principle, a chief investment officer will be appointed when the nomination committee from the NPS submits a nomination to the Ministry of Health and Welfare. The industry’s general view is that the CIO will need to maintain a sound relationship with the highest line of government officials such as the Blue House (Korea’s executive office and residence to the President) given that the pension fund has a stake of more than five percent in about 300 public companies.

AHN’S SECOND TERM IS WELCOMED BY INDUSTRY PLAYERS 

Ahn’s performance as the chief investment officer during the past 22 months has received approval from the financial industry. He was appointed in October 2018 after nearly 15 months of vacancy brought on by his predecessor Myun-wook Kang’s sudden resignation. In 2018, the NPS experienced its worst year posting a low return of 0.92% amid internal struggles such as more than a handful of senior officials leaving the pension fund after it relocated from Seoul to Jeonju in 2017.

Ahn worked as the chief executive officer of BNK Financial Group just before becoming the chief investment officer at NPS. This was his return to the pension fund since he had previously worked at NPS between 2011 and 2013 as the head of the domestic equity division and the global public market division. Upon his appointment, Ahn focused on restoring order within the pension fund and boosting overseas and alternative asset investments. Ahn filled the empty seats of division heads through internal promotions and diversified portfolios which had been focused on domestic equity and bonds to include overseas and alternative asset investments.

Ahn is credited for establishing a working relationship with global financial institutions to secure a steady flow of overseas investment pipeline. Under Ahn’s direction, alternative asset investment divisions that had been divided into domestic and overseas units were reclassified into three asset classes – private equity, real estate, and infrastructure.

In 2019 when Ahn officially took over operations, the NPS posted 11.34% in returns which were the highest since the investment management division launched in 1999.

“Ahn came in when NPS was in chaos and took care of matters. It makes sense for him to serve another term,” said a chief investment officer from a mutual aid association.

INCREASED PUSH FOR A CHANGE IN TERM PERIOD

The unsettled situation dealing with the CIO appointment has triggered underlying concerns over the two-year term policy at the NPS. Industry experts say that the term period for chief investment officers should be extended to facilitate the pension fund’s focus on long-term investments.

The combined average term for seven former chief investment officers at the pension fund was two years and two months. Among them, only one –  Chanwoo Lee – served three years, but his successors did not follow his steps.

Wan-sun Hong who served two years and three months resigned after repeatedly butting heads with the Health Minister, and his successor Myun-wook Kang abruptly resigned after 17 months without finishing his term.

It is unclear as to what will happen to Ahn. Despite the industry’s favorable sentiment towards him, the political circles are requesting for the pension fund to beef up stewardship code related activities such as exercising shareholder rights as the incumbent government enters the remaining half of its term.

Some of the potential CIO candidates that have been named include Jin-hyung Chu, former chief executive officer of Hanwha Investment & Securities, and Youngjae Ryu, the founder and CEO of Sustinvest, an environmental, social, and governance (ESG) advisory firm, because they are known to be proponents of stewardship code.

Meanwhile, industry experts are adamant that the appointment of CIO should not fall into the hands of political circles.

“Expertise is the most important quality for a chief investment officer who will be managing a global pension fund that operates over 700 trillion won,” said Kwang-woo Jun, Chairman of the Institute for Global Economics. The former chief executive officer at NPS added, “It’s necessary to change up the term-related policy so that the chief investment officer won’t be limited to short-term goals, but be able to manage the pension fund in a mid-to-long-term perspective.”

 

By Jung-hwan Hwang

jung@hankyung.com

<Edited by Danbee Lee>