National Pension Service Shifts Focus From State Control to 'Returns'...Transfers Domestic Equity Voting Rights to Private Managers

Measures to Promote Stewardship Activities among Domestic Equity Consignment Managers
Portion of 130 Trillion Won in Consigned Assets Expected to Be Affected
National Pension Service Anticipates "Enhancement of Shareholder Value and Fund Returns"

As the National Pension Service moves forward with plans to expand the scope of voting rights exercised by domestic equity consignment managers, attention is turning to the potential impact on the capital market. Since this measure effectively disperses a portion of shareholder rights that had been virtually monopolized by the National Pension Service to private asset management companies, analysts suggest that changes may occur in corporate governance and the role of institutional investors going forward. However, given that specific standards for evaluating the stewardship activities of consignment managers have yet to be released, some observers note that the actual market impact will depend on how the system is designed.

On March 5, the National Pension Fund Management Committee held its second meeting and received a report on the "Measures to Promote Stewardship Activities in Domestic Equity Consignment Management." The main point is to allow asset management companies entrusted with National Pension Service funds to directly exercise voting rights for shares they hold.

'Super Shareholder' National Pension Service's Power to be Dispersed...Consignment Managers to Exercise Shareholder Rights Beyond Investment Roles

The National Pension Service posted an unrealized gain of 4.3 trillion won in the U.S. stock market in 2025.

Until now, under the domestic equity consignment management structure of the National Pension Service, even if asset management companies made actual investment decisions, most voting rights were exercised by the National Pension Service itself. Especially for companies in which the National Pension Service invests directly, the voting rights for both its own and consigned shares have typically been exercised collectively by the fund management headquarters. As a result, consignment managers have been limited to investment management roles and have only participated in exercising shareholder rights over corporate management to a limited extent.

This system reform is focused on changing that structure. The National Pension Service has decided to pursue a shift from the current "discretionary investment" consignment model to a "stand-alone fund" structure. Under the discretionary investment model, the legal ownership of assets rests with the National Pension Service, and it also exercises the voting rights. In contrast, under the stand-alone fund structure, the legal ownership of the stocks is transferred to the asset management company’s fund, and the manager then exercises the voting rights.

As of the end of last year, the National Pension Service’s domestic equity holdings totaled 263.7 trillion won. Of this, approximately half—about 130 trillion won—is managed by consignment managers. Last year, the National Pension Service exercised voting rights at 599 listed domestic companies; among these, it exercised rights directly at 342 companies, while consignment managers exercised them at 257 companies. With the implementation of this new measure, a portion of the voting rights previously exercised by the National Pension Service is expected to be distributed to private managers.

Market participants generally interpret this measure as an attempt by the National Pension Service to partially ease the direct burden of exercising shareholder rights while also strengthening market-based governance via institutional investors.

However, rather than immediately applying the system changes across the board, the National Pension Service plans to introduce a pilot program with selected managers. The Ministry of Health and Welfare has decided to conduct a pilot with certain capable managers in the "responsible investment" category—one of eight consignment management types—taking into account conditions for stewardship activities in the domestic asset management industry, and will consider expanding the program after evaluation.

The responsible investment type is a strategy that invests in companies with the potential to enhance long-term corporate value by considering ESG (environmental, social responsibility, governance) factors. Currently, 8 out of 27 National Pension Service consignment managers operate in this category. However, not all of them will exercise voting rights; the actual pilot managers will be selected separately in the future.

A Ministry of Health and Welfare official explained, "We plan to pilot this initiative with managers who have the capacity and conditions to carry out stewardship activities," adding, "The specific managers involved will be determined after further review."

 Enhancing Shareholder Value and Corporate Valuation... "Boosting Fund Returns"

In the capital market, there are expectations that this measure could serve as an opportunity to alleviate the long-standing undervaluation of the Korean stock market by expanding the shareholder rights exercised by domestic institutional investors. Until now, asset managers entrusted with National Pension Service funds have focused on investment management, but going forward, they will be able to participate more actively in shareholder activities such as exercising voting rights and engaging in dialogue with companies.

The Korean stock market has long suffered from what is known as the "Korea discount," with corporate valuations lower than those in other major economies. This has been attributed to a combination of low dividend payout ratios, governance issues, and management practices centered on controlling shareholders, which have all contributed to insufficient reflection of shareholder value.

An expert in the capital market commented, "From the perspective of pension funds, increasing total shareholder return—which combines stock price appreciation and dividends—is important for raising long-term returns. Especially in a market like Korea, where corporate value is undervalued, exercising shareholder rights to improve corporate valuations is an important tool."

Major overseas pension funds are also employing similar approaches. For example, the Norwegian Sovereign Wealth Fund and Japan's Government Pension Investment Fund (GPIF) operate structures in which asset managers are entrusted not only with asset management but also with the authority to exercise voting rights.

An official from the Ministry of Health and Welfare stated, "The ultimate goal of stewardship activities is to improve fund returns. If managers fulfill their stewardship responsibilities through the exercise of voting rights, it can indirectly contribute to increasing the returns of the National Pension Service."

Potential Conflicts of Interest at Large Managers...Evaluation Criteria and Detailed System Design Are Key

However, some point out that whether actual changes will occur in the market after the introduction of the system will depend on the specific design of the system and the behavior of asset managers. Particularly, given the structure of the domestic asset management industry, some managers may find it difficult to engage in active shareholder activities.

Namwoo Lee, Chairman of the Korea Corporate Governance Forum, stated, "Small- and mid-sized or independent managers are likely to move actively to enhance shareholder value, but many large domestic managers belong to financial holding companies or major conglomerates. Considering their relationships with parent companies and various interests, they may be reluctant to exercise shareholder rights independently."

The impact of this measure will depend on the specific content of the "stewardship activity standards" that the National Pension Service plans to establish in the future. If the standards are limited to formalities such as submitting reports or signing on to stewardship codes, market changes may be limited. In contrast, if substantive shareholder activities such as exercising voting rights and engaging in dialogue with companies are included as evaluation items, the influence of institutional investors could increase significantly.

Minister of Health and Welfare Eun Kyung Jung stated, "By strengthening the stewardship activities of consignment managers, we will promote qualitative growth in the capital market and increase the returns of the National Pension Service fund, which serves as retirement funds for the public."

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