As the National Pension Fund's management increasingly affects exchange rates and the stock market, the government is launching a pan-government discussion. It will discuss the fund's currency-hedging strategy and ways to diversify foreign exchange financing.
The Ministry of Health and Welfare said it held the first kick-off meeting of the "National Pension Fund new framework task force" on the afternoon of the 5th at the Government Sejong Complex with related ministries and agencies.
The task force includes the Ministry of Health and Welfare, the Ministry of Economy and Finance, the National Pension Service fund management headquarters, the National Pension Research Institute, and the Bank of Korea. An advisory group of experts in related fields will also be operated separately.
Participants discussed the task force's operating plan and key tasks at the meeting. Going forward, they plan to comprehensively analyze the impact on National Pension Fund management and the domestic capital market, foreign exchange market, and macroeconomy. They will also review measures to improve the asset allocation framework.
The task force will review the National Pension Fund's overall currency-hedging policy and examine an appropriate hedging level. The National Pension Fund currently operates under a "currency open" principle, exposing assets to exchange rate volatility in the foreign exchange market. It will also discuss ways to diversify foreign exchange financing and whether to introduce currency-neutral performance evaluation and compensation systems.
The task force will operate on a rolling basis until the new framework is completed. The improvement measures derived will be finalized after deliberation and a vote by the National Pension Fund Management Committee.
Jin Young-ju, director general for social welfare policy at the Ministry of Health and Welfare, said, "With the pension reform in Apr. last year, the National Pension is expected to grow to as much as 3,659 trillion won," adding, "As its impact on the domestic market and macroeconomy has grown, comprehensive consideration is needed."
She added, "While maintaining the fundamental goal of improving fund management performance, we will swiftly prepare improvement measures to avoid exerting excessive influence on the domestic financial and foreign exchange markets."
☞ Currency hedging is an investment technique used to reduce the risk of losses from fluctuations in the value of foreign currencies such as the dollar. For example, if $1 is 1,400 won when investing in overseas stocks, it involves signing a contract in advance to receive 1,400 won per $1 when selling the stocks later.