Park Neung-hoo "Next Year's Target Excess Return 0.22%p... Maintain Current Level" (Comprehensive)

'Investment Company Guidelines' to be Discussed at Next Year's Fund Committee Meeting

[Asia Economy Reporter Minji Lee] The National Pension Service (NPS) decided at the Fund Management Committee (Fund Committee) to set next year's target excess return rate at 0.22%p, the same as this year. The investment company guidelines, which were expected to be adopted at the Fund Committee meeting, will be discussed at next year's Fund Committee.

At the 10th meeting of the National Pension Fund Management Committee held on the 16th at the Plaza Hotel in Jung-gu, Seoul, Park Neung-hoo, Minister of Health and Welfare and chairman of the National Pension Fund Management Committee, said to reporters after the meeting, “Next year's target excess return rate has been set at 0.22%p, the same as the current rate.”

Minister of Health and Welfare Park Neung-hoo is speaking at the 10th National Pension Fund Management Committee held on the 16th at the Plaza Hotel in Jung-gu, Seoul. / Photo by Moon Ho-nam munonam@

The target excess return rate determines the direction of fund management and is also used as a performance bonus criterion for the Fund Management Headquarters. The Fund Committee judged that stable management is necessary as uncertainties in domestic and international financial markets remain due to COVID-19 and other factors. As of the end of September this year, the fund size totaled KRW 785.4 trillion, and applying the target excess return rate means generating approximately KRW 1.7 trillion in excess returns.

Chairman Park explained, “There was an opinion during the meeting that the model used to calculate the target excess return rate is outdated, but rather than urgently changing it, we will continue in-depth discussions on a new model at next year's Fund Committee.” He added, “Additionally, considering the long-term target return of fund management and the growth phase of the fund, we drafted a rough direction and outline for asset allocation.” The National Pension Service plans to form an ‘Asset Allocation Improvement Task Force’ with the Ministry of Health and Welfare, Fund Management Headquarters, National Pension Research Institute, and full-time expert committee members to prepare improvement plans through expert consultations.

Meanwhile, the ‘Guidelines on the Composition and Operation of the Boards of Directors of Investment Companies of the National Pension Fund,’ which were expected to be adopted at the meeting to enhance shareholder interests by requiring investment companies to prepare CEO succession plans in advance at their boards, will be tabled at the next Fund Committee meeting. Chairman Park said, “There was not enough discussion on the ‘Guidelines on the Composition and Operation of the Boards of Directors of Investment Companies of the National Pension Fund,’ so we agreed to discuss it more deeply next time.”

He continued, “The guidelines reported today are a revised version prepared after sufficiently hearing opinions from the business community last November, and most committee members accepted it. Based on this, we plan to discuss it at the next Fund Committee meeting.” He added, “Since the Fund Committee is the final decision-making body, processes such as refining detailed expressions to ensure high public acceptance will take place.”

The guidelines for investment companies were introduced by the National Pension Service to enhance shareholder interests. They are an extension of the Stewardship Code (Principle of Trustee Responsibility), the fundamental principle of shareholder activities introduced in July 2018, and the active shareholder rights exercise guidelines, including director dismissal and appointment, passed by the Fund Committee at the end of last year.

Industry insiders expect the guidelines to include contents such as △ establishing and disclosing CEO succession policies △ composing audit and compensation committees entirely of outside directors △ prohibiting the use of capital structure changes and mergers and acquisitions as tools for management or boards to defend against hostile takeovers.

Finally, Chairman Park emphasized, “Thanks to expectations for the early commercialization of COVID-19 vaccines, the investment environment is showing signs of recovery. Although the fund is expected to achieve a return rate of around 7% this year, given the ongoing uncertainties in financial markets, we will maintain vigilance through continuous monitoring and agile responses.”

This content was produced with the assistance of AI translation services.