The Government Employees Pension Service (GEPS) is expected to maintain a cautious attitude in fund management and actively strengthen its risk management during the second quarter, especially in overseas investments and alternative assets.
The fund is reported to have discussed the first quarter financial assets management performance and management plans for the second quarter at its fourth board meeting, held recently.
In the March quarter the GEPS’ managed financial assets performed at a level 0.39 percentage points below the mid- to long-term asset benchmarks. GEPS will take a cautious stance because the entire financial market is showing signs of instability due to the impact of COVID-19.
With overseas investment, the GEPS said it would strengthen risk management until the COVID-19 situation settled down. For alternatives, there will be enhanced market monitoring and risk management of investment funds. The GEPS said that it will build portfolios in response to increased market volatility for local bonds, and will seek stable operations for local stocks.
Commenting on this conservative operations plan, executives who attended the meeting repeatedly called for “appropriate countermeasures to reflect the economic outlook after COVID-19”.
Financial assets operated by the civil servants’ pension fund amounted to 8.545 trillion won at the end of March, with 3.6 trillion won invested in bonds, 2.4 trillion won in stocks and 1.7 trillion won in alternatives. At the end of last year GEPS operated investments worth a total of 8.89 trillion won, with 1.65 trillion won in alternatives.
At the board meeting, the GEPS also reported four major revisions to its operating plan reflecting the proportion of strategic asset allocation for 5 years, establishing a committee specializing in trustee duty, changing details in foreign exchange hedges related to foreign alternatives and changing the size of mid- to long-term funds and short-term funds.
Based on the outlook for the mid-term economic and financial market every year, the GEPS reflects the proportion of strategic asset allocation over the next five years in its annual asset delivery guidelines. The pre-revision operational guidelines from 2020 to 2024 will be changed to a plan effective from 2021 to 2025.
At present bonds, stocks and alternatives are allocated in portions of 44.7 percent, 32.7 percent and 22.6 percent respectively at the end of 2020, from the total amount of mid- to long-term assets as of end of term. However, from the end of 2024 the portion of alternatives will be gradually increased to 32 percent, and bonds and stocks at 26.5 percent and 32 percent.
Significantly, a committee specializing in trustees’ duty will be established to promote responsible investment. The plan calls for the creation of a decision-making body to introduce stewardship and other codes.
The current operating guidelines say that for exercising voting rights on stocks, “After collecting opinions from specialized institutions, it will be exercised through deliberation and resolution by the Financial Asset Investment Committee (excluding SOC private investment), and in other cases, the head of the fund management department will exercise his or her voting rights.” The establishment of the trustee duty committee is interpreted as a commitment to making more systematic decisions on responsible investment.
Foreign exchange hedging principles for overseas alternatives will also be changed. At present it is stipulated that “the FX hedge ratio and the allowable range are determined by each case in consideration of product diversity, and the alternative investment committee will decide after consultation with the FX hedge committee.”
Under the revision the GEPS will stop FX hedging. Foreign bonds will be hedged 100 percent in consideration of volatility and yield levels, but overseas stocks will not be hedged. (Reporting by Hee-yeon Han)