[IPR Forum] National Pension's Proactive Crisis Defense... Focus on Managing 'Tail-Risk'

Won Jong-hyun, Chairman of Risk Management Committee, National Pension Fund Management Committee

Won Jong-hyun, Chairman of the Risk Management and Performance Compensation Committee of the National Pension Service, is giving a lecture on the topic of "Fund Management and Risk of the National Pension Service" at the "2022 Asia Economy IPR Forum" held at the Korea Federation of Banks Building in Jung-gu, Seoul on the 8th. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Park So-yeon] The National Pension Service (NPS) is taking proactive crisis defense measures to respond to structural environmental changes and geopolitical issues following the COVID-19 pandemic.

Won Jong-hyun, Chair of the Risk Management and Performance Compensation Committee of the NPS Fund Management Committee, spoke as a lecturer at the '2022 Asia Economy IPR Forum' held on the 8th at the International Conference Hall on the 2nd floor of the Bankers' Hall in Jung-gu, Seoul. He stated, "The direction of fund management in the post-COVID era focuses on managing the overall portfolio's 'Tail-Risk.'"

Tail-risk refers to the risk that a massive one-time event can have a tremendous impact on asset value.

Chairman Won said, "There is a need to seek a new paradigm for the fund to remain stable and grow during the pandemic, deglobalization, and the Fourth Industrial Revolution period," adding, "It is time to proactively avoid or hedge risks arising from structural environmental changes and to manage crises and volatility."

In particular, Chairman Won mentioned plans to strengthen cooperation with other institutions to diversify risk. He said, "We plan to leverage the fund's scale and representativeness to establish strategic partnerships and contractual relationships with asset management companies, think tanks, big data providers, and others to enhance asset allocation capabilities and secure information superiority."

He also stated, "We will move away from a simplified decision-making structure based on domestic and overseas stocks and bonds, combining dozens of investment ideas to achieve consistently high excess returns through diversification effects." He added, "We are currently working on dispersing asset allocation decisions using delegated management programs and internalizing the knowledge accumulated by various delegated managers and the trial and error executed at the current point in time as organizational capabilities through comparative analysis."

Chairman Won also addressed changes in investment perspectives brought about by the COVID-19 pandemic crisis.

He explained, "The fund's existing investment process was based on traditional economics, assuming that macro-environmental changes could be somewhat anticipated and would proceed gradually," adding, "The previous macro environment was neither fast-changing nor highly complex, so there was little difficulty in executing asset allocation based on macroeconomic forecasts."

However, after the COVID-19 pandemic, the investment environment showed accelerated changes and increased complexity.

Chairman Won said, "The shock of COVID-19 has spread globally, leading to trends of deglobalization and accelerating the manifestation of changes driven by the Fourth Industrial Revolution," adding, "If differentiation deepens by country, region, industry, and individual, investment strategies premised on stable global economic growth or medium-term predictability may face limitations."

He added, "Because linear and individualized approaches have limitations in crisis response, there is an increased need for more active risk analysis and risk management using derivatives in addition to risk diversification through asset allocation."

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