After President Lee Jae-myung recently instructed at a Cabinet meeting to consider incentives that give priority to asset managers located in the regions when allocating National Pension assets, the Ministry of Health and Welfare has begun a review, according to reports on the 2nd.
Currently, half of the National Pension fund (1,473 trillion won) is managed under mandate by private asset managers. From an asset manager's standpoint, they can earn fees worth dozens of basis points on large managed assets, making it a lucrative revenue source. In return, they must deliver strong performance to keep their spot as a mandated manager.
The Ministry of Health and Welfare, which oversees National Pension policy, plans to review how to define the regions eligible for incentives, whether to differentiate criteria such as headquarters, branches, and offices, and how to grant priority in the selection of mandated managers.
However, experts noted that if factors other than performance, such as location, are considered first, the profitability of the National Pension could be undermined.
◇ Only a handful of asset managers have headquarters outside Seoul
As of the end of Oct. last year, 50.4% of the National Pension fund is managed under mandate by private asset managers. About 369 domestic and overseas asset managers are believed to be participating. That means roughly 2 trillion won per manager. The remaining half of the National Pension fund is run by portfolio managers at the Fund Management Headquarters.
President Lee Jae-myung's proposal to give priority allocation of National Pension fund mandates to regional asset managers came amid recognition that the policy of relocating public institutions outside the capital area has not shown sufficient effect. The National Pension Service moved to Jeonju, North Jeolla Province, in 2015. But many have been reluctant to apply because it is outside the capital area, creating difficulties in hiring portfolio managers. Lee said, "When the weekend comes, employees all go to Seoul, and it seems no related companies or corporations have moved into Jeonju," adding, "What help is this to the regional economy?"
The problem with trying to carry out the president's proposal is that most asset managers in Korea are in Seoul. Even regional financial groups such as BNK, DGB, and JB operate asset managers, but they also keep their headquarters in Yeouido, Seoul.
Asset managers with their main offices in the regions are limited to ▲ two in Seongnam, Gyeonggi ▲ one in Anyang ▲ two in Hanam ▲ one in Jeonju, North Jeolla ▲ one in Daegu, North Gyeongsang ▲ three in Busan, and so on. Moreover, in terms of managed asset size and performance, they are still small to be entrusted with mandates from large institutions like the National Pension.
However, some domestic and overseas mandated managers do have offices in Jeonju, where the National Pension Service is located. They are 10 firms: SSBT, BNY Mellon, Franklin Templeton, Blackstone, Hines, Tishman Speyer, PIMCO, StepStone, PGIM, and Koramco Asset Management.
◇ "Pick those that can deliver strong returns… inappropriate to use as a tool for balanced regional development"
When selecting mandated managers, the Fund Management Headquarters of the National Pension must consider ① management soundness ② performance ③ investment strategy and process ④ organization and personnel ⑤ risk management system. In particular, it closely examines how much excess return they generated versus the benchmark (market average return) and whether performance was maintained consistently.
There are concerns that if regional location is considered first, managers that do not meet these criteria could be selected. Yoon Seok-myeong, an honorary research fellow at the Korea Institute for Health and Social Affairs (KIHASA), said, "You must choose the world's best fund managers; simply allocating because they are in a certain region is not appropriate," adding, "After the Fund Management Headquarters transferred to Jeonju, it also faced shortages of portfolio staff, and this could worsen the problem."
There are also worries that so-called "paper headquarters," where only the corporate address is moved, could proliferate. If that happens, the original goal of revitalizing the regional economy would be hard to achieve. An industry official said, "Even among domestic and overseas asset managers with offices in Jeonju now, many only keep a space and have few resident employees."
Pension experts also worry that the independence of the National Pension could be shaken. One expert, who requested anonymity, said, "If asset managers in the regions are forced to be entrusted with National Pension fund management, the fund's operations would effectively be interfered with," adding, "Only by managing the public's retirement asset transparently and independently can profitability be properly ensured."