'Salary Too Low'... Foreign Ace Avoids Korean Pension Fund [Why&Next]

원본보기 아이콘

The National Pension Service (NPS) failed last year to recruit foreign professional fund managers to work at its London office. The NPS had determined that local experts familiar with the local environment were necessary to improve overseas investment returns and thus sought to hire such personnel, but ultimately could not secure any. The issue was the "price." Professional fund managers working in the UK receive more than double the salary compared to Korea, considering the cost of living, which the NPS could not afford to match.

The NPS plans to continue efforts to secure local personnel in London this year as well. Since overseas alternative investments are essential to increase returns, personnel capable of obtaining accurate local investment information are needed. However, if the salary issue is not resolved, many pessimistic views suggest that recruitment will remain difficult this year. Inside and outside the NPS, there are calls such as "To raise the returns of the National Pension, which is responsible for the nation's retirement, the fund management should be entrusted to the world's best investment professionals" and "It is necessary to further improve related systems to enable the hiring of necessary overseas personnel."

[Image source=Yonhap News]

원본보기 아이콘

According to related ministries on the 26th, the reason the NPS cannot raise the wages of professional fund managers is due to the "Public Institution Total Wage System." All public institutions must set wages within the increase rate range determined annually by the Ministry of Economy and Finance under this system. This year, all public institutions can raise base salaries by adhering to the 2.5% wage increase rate set by the Ministry of Economy and Finance. Experts managing the fund at the NPS are also subject to the same base salary increase limits as general employees.

The Ministry of Economy and Finance explains that the total wage system is not a problem for the NPS. Although base salaries are limited, there are no restrictions on performance bonuses for professional fund managers. Last year, through discussions with related ministries such as the Ministry of Health and Welfare, the restrictions on performance bonus payments were also lifted. Previously, the NPS could only pay performance bonuses if the average fund management return over the past three years exceeded the average consumer price inflation rate over the same period.

Nevertheless, inside the NPS, there are still criticisms that the total wage system remains an obstacle. It is impossible to offer private-sector level high salaries given the limits on wage payments. An NPS official explained, "If we try to recruit fund managers with high salaries, the wages of general employees could actually decrease," adding, "Especially since the general employee salary level at the NPS is lower compared to other institutions, this structure is impossible."

Despite this, the NPS must increase fund returns. The National Pension Fund is expected to be depleted by 2055 due to low birth rates and an aging population. However, raising the fund investment return by just 0.5 percentage points from the current basic assumption of 4.5% delays depletion by two years. If returns increase by 1 percentage point, the depletion point is postponed until 2060, which is equivalent to raising the current insurance contribution rate (9%) by 2 percentage points.

President Yoon Suk-yeol personally instructed to improve the National Pension Fund's returns. In March last year, presiding over a senior secretaries meeting, President Yoon said, "Pension reform is an important national reform task to ease the burden on future generations and ensure sustainability," and ordered, "Prepare special measures to raise the fund management returns so that the National Pension can protect the precious retirement funds of the people well."

The NPS is pushing forward with institutional reforms that can be implemented immediately. Recently, it reorganized the Fund Management Headquarters to improve returns. First, it established the "Overseas Investment Planning Team" to integrate the operation of overseas investments and overseas offices. This is based on the judgment that success in larger overseas markets than Korea is necessary to increase returns. The NPS currently operates three overseas offices in New York, London, and Singapore, and has announced plans to add one more.

The NPS also reflected its will to expand alternative investments and diversify strategies. Under the existing Private Equity and Venture Investment Office, it established a Private Debt Investment Team as a subordinate unit to strengthen investment capabilities in private debt funds (PDF), which are considered promising asset classes in the global market. The Real Estate Investment Office created a Real Estate Platform Investment Team responsible for setting investment strategies for listed real estate (REITs) and platforms and discovering new investment targets.

Existing organizational restructuring was also carried out. The Foreign Exchange Operation Team, which was under the Overseas Bond Office, was reorganized directly under the head of the Strategy Division. As foreign currency assets continue to increase, the plan is to establish foreign exchange operation strategies at the overall portfolio level.

Nam Jae-woo, head of the Fund and Pension Division at the Korea Capital Market Institute, said, "To improve overseas investment performance, it is necessary to hire 'veteran' local personnel who hold high-quality local investment information," adding, "At the current compensation level, even if local personnel are hired, their skills would be inferior to those of domestic dispatched personnel, so the impact would not be significant." He further stated, "If the salary level of fund managers is raised, the structure limiting the wage increase rate of general employees should be improved, and ways to create a separate compensation system should be found."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.