Korea’s National Pension Service (NPS) has increased its securities investment in the country’s top four conglomerates ― Samsung, Hyundai Motor, SK and LG ― by about four times over the past five years; he four firms accounted for as much as 58 percent of the NPS’s combined stock investment in 2012, compared with 34.6 percent in 2007

2013-03-26 17:54

NPS exposure to risk increasing

By Na Jeong-ju


The National Pension Service (NPS) has increased its securities investment in the country’s top four conglomerates ― Samsung, Hyundai Motor, SK and LG ― by about four times over the past five years. This is another indication that the state pension fund is making little effort to diversify its investment portfolio ― the No. 1 rule for risk-hedging. That also means the NPS is betting bigger money from pensioners on the four firms ― if they falter, people’s money will be at risk. According to the NPS, Tuesday, its investment in stocks and bonds issued by the four business groups and their affiliates totaled 51.7 trillion won ($46.6 billion) as of the end of 2012. That’s about 3.7 times larger than 13.5 trillion won in 2007. The four firms accounted for as much as 58 percent of the NPS’s combined stock investment in 2012, compared with 34.6 percent in 2007.In contrast to its heavy stock holdings, the NPS is less interested in bonds. The fund held 9.18 trillion won worth of bonds issued by the four groups at the end of 2012, which is about 3.89 percent of the NPS’s total investment in bonds. Analysts say its heavy exposure to stocks is a double-edged sword.

“That’s good when the stock market is stable. However, if the market crashes, there will be huge consequences,” said Nam Jae-woo, a researcher at the Korea Capital Market Institute.

Nam said the NPS’s increased stock investment in large firms could make it difficult for them to make crucial managerial decisions independently.

“The government could interfere in corporate issues in the private sector, telling the firms what to do and what not to do. That’s not desirable at all,” he said.

Last month, Kim Chong-in, the architect of President Park Geun-hye’s “economic democratization” policy, expressed opposition to the NPS’s stock investment, saying its exposure to volatile assets could put itself as well as the lives of senior citizens in serious trouble.

“The state pension is the only source of income for many senior citizens. With the money, they can keep living without the support of their children,” Kim said in an economic forum in Seoul. “If a financial crisis hits the country again, the NPS will incur a tremendous amount of losses. That’s a burden for future generations.”

The NPS said it had its largest exposure of 22.06 trillion won to Samsung at the end of last year, accounting for 30.1 percent of its total stock investment.

The NPS owned shares of Hyundai Motor valued at 10.9 trillion won, while the comparable figures for LG and SK were 4.89 trillion won and 4.69 trillion won, respectively.

It held the largest amount of SK bonds worth 3.61 trillion won, followed by Samsung with 2.49 trillion won and Hyundai Motor with 1.82 trillion won.

Despite the danger of its excessive stock investment, the NPS has increased its exposure to riskier assets. The NPS is the fourth-largest pension operator in the world, holding assets worth over 400 trillion won ($368 billion).

The pension fund plans to expand its stock investment ratio to 30 percent by 2016 from the current 25 percent, which means at least 169 trillion could be poured into the stock market.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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