South Korea's National Pension Service submitted a proposal last month to the government's fund-type retirement pension working group to participate as an OCIO in the new market expected to launch in the first half of next year. The NPS plans to serve as a trustee corporation for public institutions and as an OCIO for other funds upon request, entering a market currently dominated by private asset managers and securities firms. The move has drawn criticism from industry and academia, with concerns that the NPS—which already evaluates and selects private managers for its own fund outsourcing—would create an uneven playing field by competing directly with the firms it oversees.
NPS Submits OCIO Participation Proposal to Government Working Group
According to reporting by the Korea Economic Daily on the 27th, the National Pension Service submitted a document titled "Public Pension Fund Participation Plan" to the government's fund-type retirement pension working group last month. Fund-type retirement pensions operate through a three-tier vertical structure: trustee corporation, OCIO, and sub-asset managers. The NPS proposal outlines participation as a trustee corporation for public institution employee retirement pensions, and as an OCIO for the Small and Medium Enterprise Retirement Pension Fund and other private enterprise funds upon request. An NPS official stated the agency would only assume the OCIO role when requested by each fund operator.
An OCIO receives assets from pension funds or corporations and performs comprehensive asset management duties including investment strategy formulation, asset allocation, manager selection, and risk management. Under current Capital Markets Act regulations, only asset management companies can serve as OCIOs. The NPS proposal seeks to expand this role to include the pension service when requested by trustee corporations.
Industry Criticizes NPS Entry as Unfair Competition
Financial investment industry concerns center on the NPS's dual role as both evaluator and competitor. The pension service currently outsources tens to hundreds of trillions of won to private managers while holding authority to select and evaluate these same firms. A senior asset management industry official stated, "In the public fund domain, the NPS is the 'referee' and private firms are 'players.' If the NPS enters the private domain as a player, what external evaluation body can compare them with objective standards?"
Sung Joo-ho, professor at Kyung Hee University's College of Business Administration, stated, "The capital market has defined roles for each participant, but the NPS appears to be crossing those boundaries." The government is also pursuing measures to strengthen fiduciary responsibility by enhancing the burden of proof when financial companies operating fund-type retirement pensions incur losses.
Structural Differences Between DB and DC Pension Models Raise Concerns
The fundamental operational differences between the National Pension and retirement pensions present additional challenges. The National Pension operates closer to a defined benefit (DB) model with fixed payment amounts at specific times, while fund-type retirement pensions follow a defined contribution (DC) structure where benefits depend on investment performance at retirement. Professor Sung noted, "The NPS lacks capacity even for DB-type operations, currently outsourcing 51% of total fund management. It makes no sense to additionally outsource DC-type management, which requires even more operational personnel."
The three types of fund-type retirement pensions are: financial institution open type (banks, insurance, securities firms pool funds from multiple workplaces), union type (industry, sector, or labor organizations create joint funds managed by professional institutions), and public institution open type (public agencies operate funds). The trustee corporation approves the investment policy statement through a fund management committee and selects and evaluates OCIOs. The OCIO receives comprehensive asset management delegation from the trustee, establishes overall asset allocation strategy, and manages portfolios. Sub-asset managers receive re-delegation from OCIOs to manage individual assets such as overseas private equity funds and domestic real estate.
FAQ
What role does the National Pension Service plan to take in the fund-type retirement pension market?
The National Pension Service submitted a proposal last month to serve as a trustee corporation for public institution retirement pensions and as an OCIO for other funds upon request when the market launches in the first half of next year.
Why are industry experts criticizing the NPS's OCIO entry plan?
Critics argue the NPS already evaluates and selects private asset managers for its own fund outsourcing, and entering the OCIO market as a direct competitor creates an unfair playing field where the referee becomes a player in the same market.
What is the difference between the National Pension's structure and fund-type retirement pensions?
The National Pension operates closer to a defined benefit model with fixed payments at specific times, while fund-type retirement pensions follow a defined contribution structure where retirement benefits depend on investment performance at the time of retirement.
