Pension Funds Seen Swaying Markets

The planned investment of more than 6 trillion won ($4.6 billion) by Korea's four largest pension funds is expected to transform the landscape of local equity markets.

The National Pension Corp. plans to pour a total of 2.9 trillion won into stocks - 500 billion won in direct investment, 1.5 trillion won in trust funds and 900 billion won in equity funds managed by investment trust companies. Other pension funds and postal insurance funds are going to increase their stock portfolios.

More than 60 pension and state-run funds have a combined 115 trillion won of assets under management. The National Pension is the largest of them, with assets of some 63 trillion won.

Of the total, they have exposure to stocks worth a total of 6.8 trillion won; they invest 2.5 trillion won directly in equities, 2.2 trillion won in funds exclusively for them and 2.1 trillion won in beneficiary certificates. The government plans to increase their stock portfolio to 25 trillion won within two to three years.

With the revision of laws regulating the management of the funds, pension and other funds can invest in derivatives products, such as futures and options, and in overseas assets. Their investments in stock index futures and options, which are considered necessary to hedge investment risks, are expected to bring enormous changes in the derivatives market, where foreign investors have the upper hand.

"With increased stock investment by pension funds, day traders will have less influence on the local equity markets," said Lee Ki-woong, an equity fund manager at Korea Investment Trust & Management Co. "Instead, investing with medium- and long-term perspectives will gradually take root in the local stock market, focusing on corporate value and performances."

With huge amounts of assets under management, the pension and other funds are becoming stricter about their portfolios and taking up various investment strategies. The National Pension, which lost about 1.6 trillion won in stock investments, will form an alliance with a Canadian pension-fund management firm to learn "advanced" investment know-how.

by Chung Jeh-won