Choi Kwang, the new chief of the National Pension Service, is committed to a drastic reform of investment strategy and governance of the world’s fourth-largest pension fund as it seeks to support payouts for Korea’s fast-aging population by improving profitability.

Priority will be given to bolstering in-house fund management expertise and securing a bigger say in making decisions on its investment portfolio, the NPS chairman said in an interview with The Korea Herald.

“It is my mission to lay the foundation for strengthening manpower at NPS’ fund management unit. (We have to) build a bigger organization for deliberate and aggressive fund management in the next 10-20 years, like Temasek,” Choi said at his office in Jamsil, southeastern Seoul.

He was referring to Singapore’s state-owned investment company, which is famous for its aggressive business strategy.

Managing more than 410 trillion won ($386 billion), the NPS follows only Japan’s GPIF, Norway’s GPF-G and the Netherlands’ APG in asset size.

The nation’s largest investor in bonds and stocks, however, is still mired in regulatory controls on its investment allocation and a limited staff of financial experts.

A recent visit to Temasek brought home the urgent need of change to Choi, 66, who once served as the top supervisor of the fund as health and welfare minister in the late 1990s.

Temasek is one of the world’s oldest and most successful sovereign funds, established in 1974 under Singapore’s Ministry of Finance. It owns and manages a $173 billion portfolio as of March 31. The Singaporean fund has diversified its holdings to all over the world, often making riskier investments for high returns.

In September Choi met a high-level official at Temasek to discuss investment principles and business strategies.

“On the way back home (from Singapore), I felt heavy with worry. … We don’t have a huge talent pool, not to mention that (our investment) decisions are tied up by a governing body,” he said.

As a pension fund, the NPS does not have the latitude allowed for Temasek. But the NPS still has much room for improvement in regulation and staffing in consideration of its growing profile and the gravity of demographic risks facing the nation, Choi said.

The NPS currently needs to get final approval for its projects and investment mix from the National Pension Fund Management Committee chaired by the health and welfare minister.

The 20-member committee consists of six representatives from the government, three from business, another three from labor, six from subscriber groups and two investment experts. The committee approves the NPS’ investment plan and portfolio balance at least once per quarter.

Choi said at a parliamentary audit held last month that the committee needed more business professionals, implying that the committee should embrace market principles and allow greater investment authority to raise funds in a fast-changing environment.

The NPS currently has 157 fund managers, meaning that each manager is in charge of managing more than 2 trillion won.

In 2011, the Netherlands’ APG, the world’s third-largest pension operator, had 650 managers operating funds worth 453 trillion won, while the California Public Employees’ Retirement System had 270 managers managing a 216 trillion won fund, an NPS official said.

As part of a long-term plan to diversify its portfolio, the NPS will ratchet up its overseas investment as well, the chairman said.

The NPS planned to make fresh investments worth 76 trillion won in financial markets both at home and abroad in 2014. Choi pinned hopes on gradually increasing the portion of overseas investment from the current 18 percent to over 20 percent.

As of the end of August this year, the NPS invested approximately 18 percent of its combined assets of 410 trillion won overseas and the rest domestically, according to officials.

Of the total, the pension operator invested heavily in bond markets with 62.7 percent of its assets, 27.8 percent in stocks and 9.2 percent in alternative investments, they added.

Stressing that he is not in a position to say whether or not it is appropriate to increase the pension contribution rate, the former economics professor said the NPS should focus on generating more profits rather than engaging in the debate on contribution hikes.

“Making an aggressive investment in order to raise profit is very important and worth trying, because it is the most efficient way to calm public fears growing over the depletion of the pension fund,” he said.

The proposed raise in the contribution rate is gaining momentum amid fears about the health of the national pension fund, which is projected to sustain losses from 2044 and fully run out by 2060, according to a recent estimate.

In August, an advisory panel on pension reform suggested the government gradually increase the pension contribution rate by 2017 for sustainable management of the public fund. Welfare minister nominee Moon Hyung-pyo is reportedly calling for a 4 percentage point hike from the current 9 percent contribution rate.


Profile of Choi Kwang

● Choi Kwang, former health minister, took office in May as chairman of the National Pension Service. He was named by President Park Geun-hye. His three-year term ends in 2016.

● Choi is one of the country’s leading free market economists and has been calling for public policy to be formulated on market-based principles. He served as health minister for the Kim Young-sam administration from 1997 to 1998 and as president of Korea Institute of Public Finance between 1995 and 1997.

● Born in Namhae, South Gyeongsang Province, Choi graduated from Seoul National University with a major in management and studied public administration at the graduate school of University of Wisconsin. He received a Ph.D. from Maryland University in economics under the guidance of Mancur Olson, one of the U.S.’ leading economists and social scientists until his death in 1998. From 1985, Choi taught economics at Hankuk University of Foreign Studies and retired late last year.


By Cho Chung-un (christory@heraldcorp.com)