How would you feel if someone managing your money refused to disclose where and how it was being spent? Even if they delivered excellent returns, you would think twice about entrusting your funds to them without explanations of the process and rationale behind each decision. This is the situation surrounding the National Pension Service (NPS), which is expected to post its highest returns ever this year.
Buoyed by a strong stock market, the NPS fund is growing rapidly. This year, it is on track to achieve the symbolic milestones of a 20% return and 2,000 trillion won in assets for the first time in its history. The investment performance itself is undeniable.
What falls short is transparent communication. On the 27th of last month, the NPS raised its target weighting for domestic equities this year from 14.9% to 20.8%, an increase of 5.9 percentage points. After temporarily suspending the domestic equity weighting cap in January, overturning even the medium-term asset allocation plan is unprecedented. The government's explanation was confined to a perfunctory statement: "It is a decision that takes into account the impact on financial markets while enhancing the long-term profitability and stability of the National Pension Fund in response to recent changes in market conditions." The Strategic Asset Allocation (SAA), which sets the additional allowable range for domestic equities, will be expanded from the current ±3 percentage points, but the detailed figures will not be disclosed. In effect, the public will not be told how, or how much, of the money they entrusted is being used.
Launched in the 1980s, the National Pension is a system in which citizens pay premiums and receive benefits in retirement. The NPS, as an agent, merely manages money that belongs to its true owners — the people. Yet the discussions behind the decision to expand the equity weighting are not even disclosed to those owners. The public has no way of knowing the contents of the meeting minutes from January, when the equity weighting cap was suspended, nor those of the deliberations behind the recent sharp increase in equity allocation.
It is time to revisit the stewardship code. The stewardship code is a set of guidelines requiring major institutional investors to act like a steward managing the owner's assets — actively participating in corporate decision-making, faithfully fulfilling their role as shareholders, and reporting transparently to the owners of the funds entrusted to them. The stewardship code applied to asset management firms is important, but the NPS must not forget that the same code applies to its relationship with the Korean public.
