Misplaced prioritiesIn many meetings, the National Pension Service (NPS) concentrated on the issue of reinforcing shareholders’ rights rather than addressing the most critical issue: its own investment strategies. According to an opposition lawmaker and a report in the Korean Economic Daily, the state pension fund held as many as 29 meetings of its trustees committee to discuss how to promote shareholders’ rights from 2017 through March. In the same period, the fund held only three meetings of its investment policy committee to determine the direction of its investments.
That’s the same as putting the cart before the horse. The fund’s investment policy committee is a body that determines the portfolio of its investments in domestic and foreign stocks and bonds, real estate and other assets. As the fund’s earnings rate primarily depends on decisions of the committee, frequent and thorough discussions of its investment strategy to secure the most profits possible are a must. Nevertheless, the fund held such meetings very rarely. That’s not all: Committee members’ participation in the meeting was very low — only five to seven out of the 22-member investment committee attended the three meetings over the last 27 months.
Meanwhile, the trustees committee held meetings very often — three times a month so far this year, for instance. Exercising stewardship through the committee is necessary, but that comes after first fixing its investment policy. Once the fund chooses a wrong investment direction, it cannot raise its return rate no matter how adroitly it exercises its stewardship code. Such a reversal in priorities in operating the state pension fund is absurd.
The structure of the NPS is also problematic as its investment policy committee is critically lacking experts; instead, it is full of professors and researchers. That’s abnormal — it’s the equivalent of giving money to scholars to invest. Its steering committee is comprised of representatives of companies, labor, ministers and deputy ministers. That is in sharp contrast to the Canada Pension Plan (CPP), which has been independently — and successfully — run by insurance companies and private equity funds.
Such differences led to a huge gap in their profits. While the NPS suffered 6 trillion won ($5.26 billion) in losses with a negative earning ratio of 16.8 percent last year, the CPP saw an 8.4-percent profit on its investments. The time has come to change the way the government runs the state pension fund.
JoongAng Ilbo, April 23, Page 34