South Korea’s National Pension Service (NPS) has partially changed rules on foreign exchange business institutions in a move to be in line with the pension fund’s plan to increase exposure to overseas investments.
The country’s largest public pension fund has made changes to its fund management rules at the latest board meeting, sources familiar with the matter said on Wednesday. It has revised the Article 81 of its rules, which was effective on April 7.
Under the revised rule, the pension scheme is now allowed to make foreign exchange transactions with more than one branch of foreign financial institutions. Previously, the pension scheme was allowed to work with only one foreign financial institution when making foreign exchange transactions.
NPS stated in its meeting minutes that it has decided to increase the number of foreign exchange business institutions to reflect the pension fund’s increased investment in overseas markets.
The share of foreign assets is increasing and the pension fund is planning to further bump up its overseas investment in the future.
NPS had approximately 736.5 trillion won in assets under management as of the end of February, of which overseas investment accounted for about 35 percent or 259.9 trillion won. Among foreign assets, the pension fund allocated 162.4 trillion won to global stocks. Its investments in foreign alternatives and global bonds stood at 62.7 trillion won and 34.5 trillion won, respectively.
The pension fund is seeking to gradually increase the share of foreign assets in search of higher returns in the long run. The portion of global stocks and global bonds are expected to account for 22.3 percent and 5.5 percent, respectively, by the end of 2020. NPS aims to increase the portion of its foreign investment to 50 percent by 2024.
The increase in overseas investments and an increase in foreign exchange transactions go hand in hand. Considering this circumstance, the pension fund’s latest change of its rules is seemingly to revise existing rules which may limit its overseas investments.
Yet, one meeting participant expressed his concern that the increase in foreign exchange transactions will help the pension fund reduce commissions and earn profits on foreign exchange, but, at the same time, a safety net has to be made as risks will rise as well. (By reporter Han Hee-yeon)