NPS In Action is a series of articles and interviews on South Korea’s largest investor National Pension Service to analyze its current state and identify tasks that lie ahead. This is the first installment. -- Ed.

Seo Won-joo took the reins as the new chief investment officer of the National Pension Service in the time when he has to wear multiple hats to run the world’s third largest pension fund.

With a career path that wound through life insurance companies and a pension fund for government employees, Seo is well positioned to lead this fund with assets of some 900 trillion won ($730 billion) under management.

He took office in December with a double mission for his two-year tenure – improve its falling returns on investments, and encourage its portfolio firms to pursue responsible and sustainable growth.

“Korea is now at a critical juncture to discuss how to reform the pension fund management system to enhance stable and long-term investment returns,” said Nam Chae-woo, a senior researcher at the Korea Capital Market Institute.

Reboot investing portfolio for better return

Since the outbreak of the COVID-19 pandemic, returns on the National Pension Fund -- which boasted an annual average of 10 percent between 2019 and 2021 -- turned negative last year with increased downward pressures in the market such as high inflation, interest rate hikes and concerns about economic recession. The pension fund had a cumulative loss of 7.1 percent on investment, or 68 trillion won, between January and September of last year.

Seo’s stellar performance in raising returns was proven when he served as the CIO of the Government Employees Pension Service of Korea for three years between 2019 and 2022 prior to joining the NPS.

Under his leadership, the GEPS posted 9.6 percent, 11.4 percent and 9.7 percent of returns on investment in 2019, 2020 and 2021, respectively, in contrast to a loss of 2.7 percent in 2018.

At the GEPS, Seo focused on diversifying alternative investment assets ranging from venture capital and overseas private equity funds to overseas infrastructure.

One of Seo’s routines at the GEPS was holding brief daily meetings on economic assessments, as he saw global macroeconomic trends as a key factor affecting his work.

Seo also has overseas experience that aids him in dealing with international markets. He started his financial career at Samsung Life Insurance in 1988 and was the head of the insurer’s New York and Singapore offices. Seo was also CIO of the now-defunct PCA Life Insurance -- which was fully acquired by Mirae Asset Life Insurance in 2018 -- for four years between 2014 to 2018.

His new challenges are overseeing NPS’ much larger funds -- worth 100 times that of GEPS – and a negative outlook for the global economy, which is projected to expand at a sluggish pace as financial conditions tighten.

During an inauguration event, Seo stressed that creating “maximum results” is among his goals and duties.

"I believe that the recent financial market and tough operating conditions are giving us another opportunity in terms of long-term portfolio management,” Seo said, adding, "We will mobilize the financial expertise and investment capabilities of employees to come up with flexible portfolio asset allocation and more active investment strategies.”

The NPS now needs to make qualitative changes to its sophisticated portfolios and investment strategies, said KCMI researcher Nam.

The current NPF management system was designed in 2005 when pension assets worth 160 trillion won were invested primarily in domestic bonds.

The pension fund has devised a long-term management strategy that aims at building a diversified global investment portfolio by increasing the weight of alternative investments and reducing home biases. “But it has made little progress in implementing the strategy,” Nam said.

New stewardship, active shareholder rights

Bolstering a stewardship code and actively exercising shareholder rights are the other missions that the new CIO has placed on his to-do list.

Previous and current moves made by the NPS to act as a catalyst in spreading stewardship in Korea have often come under much criticism due to concerns that the quasi-government agency could "meddle" in corporate decision-making, make listed firms more vulnerable to speculative funds and discourage entrepreneurship.

On the other hand, it also invited criticism for being “passive” in exerting its shareholder rights, turning a blind eye on corporate governance problems and unfair business practices.

Seo was vocal on the issue from the day he stepped in.

“As part of the trustee’s responsible investment activities, which are continuously promoted by the National Pension Service, we will exercise our shareholder rights related to the rational governance of the investee companies,” he said.

Winning over and retaining top talent

Employee turnover, which has been frequent following the NPS’ relocation in 2017 to Jeonju, North Jeolla Province from Seoul, is another task needs to be resolved.

Facing difficulties in retaining talent, it raised the average annual salary of asset managers from 80 million won in 2016 up to 160 million won in 2020. But worker outflow continued as its salary was still low compared to that of private financial companies.

In a book titled "OECD Reviews of Pension Systems: Korea" released in September last year, the Organization for Economic Cooperation and Development said an “attractive remuneration policy” for internal staff is important to ensure that the NPS recruits and retains talented investment experts and potentially offset the increased turnover from the relocation.

It also recommended the pension fund to send its internal staffers to its overseas offices in New York, London and Singapore.

Seo's term of office ends in December 2024 and can be extended on a yearly basis depending on fund management performance.