[Viewpoint]Fight for independenceThe government is working on a plan to put the National Pension Fund Management Committee directly under the presidential office. The committee, which the government had originally planned to privatize, will instead be operated as a civilian organization. The management of the fund will be entrusted to civilian professionals to ensure as much autonomy as possible.
However, it is not easy for the civilians to have their opinions reflected inside a government organization. When the civil servants create the bureaucratic structure to support the committee, they might want to put the experts under their thumb. It is especially worrisome when economy-related government agencies assert their influence.
The management of this fund should be completely independent of influence from the economic agencies.
The Korea Investment Corporation, which was created as a civilian organization, has not performed professionally. That shows the potential problems of having the government involved in the management of a pension fund.
Why does the government want to get involved? The biggest motivation is to keep the distribution of assets under its financial management. Privatization was considered precisely for this reason, but the original purpose has completely faded.
Internationally, the trend is to keep the government from being involved in the management of pension funds. The idea is to protect the interests of the pension members by enhancing the fund’s autonomy, specialty and independence. In addition, we need to create a pension fund management committee that is independent of the government.
However, the bill is not comprehensive enough to ensure the huge pension will be managed efficiently. More in-depth discussions are needed. The problem with the management of the pension fund is not just the lack of specialties and autonomy, but the size of the fund, which is excessively large compared to the size of the national economy.
More than 90 percent of the fund’s profits are based on the asset distribution of stocks and bonds. In fund management, distribution is the key. For example, the stock market has been very brisk this year, and if management had invested 10 percent more on stocks, the total earnings would have been 5 percent more.
However, when such a huge fund is operated by a single entity, it is likely that the decision maker will want to minimize investing in risky assets, such as stocks. If investing in stocks results in low earnings, the manager would end up being criticized. However, if he invests mainly in secure assets, he could at least insulate himself from some criticism.
The amount of investment into the national pension fund on stocks was only 15 percent this year, so it is hard to evaluate that decision.
There are no right or wrong answers in investment portfolios and no case compares with it in the country. Some might point out that if the fund had invested more on stocks, it would have been more profitable. However, in general, bigger funds are harder to manage and tend to have smaller yields.
The problem is that the large funds are managed by a single decision-making entity. By diversifying the decision-making entity, we could deal with this problem better.
The fund is currently above 200 trillion won ($218 billion) and is expected to reach 1,000 trillion won in 10 years. It is too heavy a burden for a single committee to take charge of such a big fund. Therefore, we should divide the fund management corporation appropriately and have each management entity make its own decisions.
When the fund is divided into smaller sizes, the impact on the capital market will decrease. That will lead to enhanced flexibility and autonomy, as well as less pressure for possible mistakes when the assets are distributed.
When each management entity distributes its assets based on its own market forecast, we have less risk as a whole, even if an entity makes the wrong decisions.
Each investment entity can aggressively manage its assets, preventing the fund from being managed too safely. The individual management units should be evaluated based on performance, and the competition among these units could elevate the efficiency of the management of the fund.
The fund management committee can entrust the power of asset distribution to each management entity and control these units efficiently by managing the total risk and conducting performance evaluations.
*The writer is a professor of economics at Seoul Women’s University. Translation by the JoongAng Daily staff.
by Lee Jun-haeng