Following the state of emergency and the presidential impeachment situation, calls have emerged in the political arena for the National Pension Service (NPS), a major player, to increase its domestic investment ratio. The argument is that the National Pension, with a fund accumulation amounting to 1,146 trillion won (as of September 2024), should act as a firefighter in crisis situations. Since the backing of a large pension fund would not negatively impact the market, this is a favorable argument to gain investor support.
For the National Pension, which has set its fund management direction toward strengthening overseas investments, the political demands for 'patriotic' measures can be quite perplexing. The vulnerable governance structure, easily swayed by external pressures, adds to the anxiety for those managing the pension fund. Experts remind that even if the National Pension increases its domestic stock proportion, it should not forget the reality that it will soon have to dispose of these assets.
◇ As the stock market shakes, lawmakers urge, “The National Pension must assist.”
According to the Korea Exchange on the 18th, the KOSPI index, which appeared to be smoothly on its way to 3,000 points by rising to 2,896.43 on July 11, plummeted to 2,456.81 based on the closing price on the 17th of this month. On the 9th, it fell to 2,360.18 during trading. Domestic and international negative factors such as the election of Donald Trump as U.S. President and his tariff war warning, the attempted emergency decree by President Yoon Suk-yeol, and the subsequent impeachment efforts have weighed down on the stock market. The won/dollar exchange rate soared close to 1,450 won.
As the market sentiment worsened, voices emerged in the political arena calling for the National Pension to increase its proportion of Korean stocks. On the 12th of this month, Lim Gwang-hyun, a member of the Democratic Party on the National Assembly's Planning and Finance Committee, wrote on social media (SNS) that 'urgent measures are needed to resolve the Korea Discount and defend the exchange rate,' suggesting, 'How great would it be if the National Pension realized some of the revenues from international investments and invested them domestically?’
Earlier on the 10th, Yoon Sang-hyun, a member of the People Power Party, also remarked, 'The Korean stock market is showing a serious unstable trend,' asserting that 'the National Pension should take steps to stabilize the market by expanding domestic stock purchases.' He also noted that 'utilizing the funds held by the National Pension Fund Management Headquarters to purchase undervalued domestic stocks is a quickly executable measure that does not require a legal amendment or implementation decree.'
This is not the first time the political realm has demanded the National Pension to step in during market instability. Kim Jin-pyo, the former Democratic Party member who served as the National Assembly Speaker, appeared on a radio program on October 31, 2018, during the Moon Jae-in administration, criticizing the National Pension's reduction of domestic stock investment scale as 'short-sighted.' He argued that 'the National Pension must play an important role in stabilizing the stock market.'
◇ Vulnerable giant
Amid repeated calls from the ruling party and major opposition lawmakers for expanded domestic investment, members of the National Pension Fund Management Headquarters express their discomfort. There are concerns that the political realm may increase pressure while gauging public sentiment. The National Pension operates under the Ministry of Health and Welfare. The Minister chairs the Fund Management Committee, the highest decision-making body. Although independence is ostensibly guaranteed, the governance structure makes it genuinely difficult to maintain independence.
A former senior official who worked at the National Pension Fund Management Headquarters for about 10 years before moving to a private securities firm stated, 'Just by looking at the approval cases of the merger between Samsung C&T and Cheil Industries, it is not hard to infer the degree of direct and indirect external pressures faced by the National Pension.' He added, 'During my 10 years at the National Pension, I received so many calls from high-ranking government officials and lawmakers that I couldn’t count them all.'
Even if the National Pension increases its domestic stock proportion, it will soon have to reduce it again. This is another reason why the National Pension feels perplexed by the political calls for patriotic investments. The National Pension fund amounts to 1,146 trillion won, but this money is expected to be exhausted in just 30 years. This is due to the demographic shift, where there will be many more pension recipients than contributors. Currently, the National Pension is listed among the core shareholders of major domestic corporations, indicating that it will soon have to begin asset sales to make pension payments.
The sudden asset disposals by major players could significantly impact the market. This is the background behind the National Pension’s steady reduction of its domestic stock proportion each year. According to the National Pension's medium-term asset allocation plan, the target domestic stock proportion, which was around 20% in 2017, will be reduced to 13% by the end of 2029. Son Hyop, head of the National Pension Fund Management Headquarters' Investment Strategy Office, noted, 'If we maintain the current ratio of domestic stocks, we will have to sell tens of trillions of won annually when pension payments exceed income in the maturity phase.'
The National Pension has set its fund management policy direction toward 'maximizing revenue through strengthening overseas and alternative investments.' The proportion of overseas investments in the total investment is expected to increase from 51.6% last year to 60% by 2028. As of September this year, the National Pension’s revenue from domestic stocks is 0.46%, while revenue from overseas stocks stands at 21.35%. The National Assembly Budget Office analyzed that if the National Pension's fund management revenue rate is increased by just 1 percentage point (P), the fund depletion timing can be delayed by about six years.