The Government Employees Pension System (GEPS) plans to amend its Investment Policy Statement (IPS) – which specifies objectives and strategies for fund management – to stop hedging for alternative investments abroad and add a stewardship code, the Market insight reported on Thursday.
The plan includes changes in the foreign exchange hedge policy, introduction of a stewardship code and adjustment of the strategic asset allocation plan for 2021-2025. The plan is expected to be finalized at a management committee meeting on Monday, according to the investment bank industry sources.
The revision will change the foreign exchange hedge principle for alternative investments done overseas to “non-hedge”. Foreign exchange hedging is aimed at offsetting the risk of exchange rate fluctuation by fixing future exchange rates. Currently, the GEPS does not hedge overseas stocks but hedges overseas bonds. For alternatives investments, non-hedge is the principle.
The GEPS is also calling for the establishment of a committee to oversee trustees’ responsibility. It is thought that the GEPS, which was passive in exercising shareholder rights, has established an official decision-making system to lay the groundwork for full-fledged shareholder activities.
The plan to allocate strategic assets between 2021 and 2025 is expected to remain unchanged. For now, the GEPS is planning to allocate 32.7%, 44.7% and 22.6% of shares, bonds and alternative investments at the end of 2020 and change the portion to 26.5%, 41.5% and 32% in 2024. Instead of traditional assets such as stocks and bonds, it plans to increase the proportion of alternative investments and expand overseas investment.
The GEPS manages a total of 8.21 trillion won ($6.607 million) in financial assets as of the end of last year. The GEPS earned a 9.56% return last year through investment, but due to the outbreak of Covid-19, its first-quarter profit fell to 5.7%. (Reporting by Hye-won Chang)