South Korea’s Government Employees Pension Service (GEPS) has altered its approach to risk management to become more flexible with its holdings in risky and overseas assets.
GEPS has recently made changes to its risk management policy, sources said on May 29. The revised policy specifies guidelines for actions to address risk-taking which exceeds the risk-tolerance limit set for each asset class in advance.
Previously, when such a risk-taking event occurred the cause would have been reported to the head of fund management immediately to take mitigating actions such as reducing the share of risky assets and restricting new investments. But after the revision, the head of fund management can decide on how to respond to each case considering the identified cause of the occurrence.
The move by GEPS allows it to respond more flexibly to heightened volatility in the global financial markets in the aftermath of Covid-19 and to continue its push for riskier assets in the long run.
Korean institutional investors are putting more money in overseas stocks and alternative assets in search of higher returns in the mid-to-long term. GEPS is no exception. Its alternative assets reached 1.65 trillion won ($1.30 billion) at the end of 2019, representing nearly 20 percent of total assets. That compares with about 15 percent during the three years from 2015 to 2017. GEPS’ investment in overseas stocks also accounted for more than 11 percent of total assets in 2019, up from 7 percent in 2015.
GEPS is seemingly concerned that too many restrictions on risk-taking could hamper its efforts to have greater exposure to such asset classes or result in missed opportunities to invest in undervalued assets, amid the market disruption caused by Covid-19.
The revision also allows a more flexible approach to risk-taking exceeding the risk-tolerance limit for more than 10 working days. Previously in such cases, actions to reduce investment risks would have been taken immediately. But the revised guidelines allow delays in such actions or adjustment to the risk-tolerance limit for individual asset classes within the limit for total assets. (Reporting by Hee-yeon Han)