After the Commercial Act, Institutional Investors: “If They Fail to Act as Shareholders, National Pension Service Funds Will Shrink”

[Financial News] The Democratic Party of Korea, which has pursued improvements in corporate governance through amendments to the Commercial Act, is now pushing to strengthen institutional investors’ “shareholder role.” The plan would evaluate asset managers’ actual activities, including exercising voting rights and engaging with companies, and differentiate the allocation of National Pension Service (NPS) entrusted funds accordingly. The idea is to use NPS funds as both an incentive and a penalty by entrusting more money to managers that perform well and withdrawing funds from those with poor results.
At the “Evaluating and Reflecting the Stewardship Code to Enhance Corporate Value” debate held at the National Assembly on the 11th by the Democratic Party of Korea’s K-Capital Market Special Committee, Democratic Party of Korea lawmaker Kim Nam-geun criticized the current evaluation of NPS outsourced asset managers, saying, “They simply give everyone the same two points every year, making the evaluation meaningless.”
NPS currently awards two bonus points to outsourced managers of domestic and overseas stocks and bonds based on factors such as whether they participate in the Stewardship Code. However, critics say the system has little ability to distinguish among managers because virtually all of them receive the bonus points.
Kim said, “Starting next year, it could be 10 points instead of one, or eight points, or 15 points, but there should be differences, and those differences should be reflected in the assignment of asset-management mandates.” The figures cited were examples, not finalized scores. The Democratic Party of Korea also emphasized the need to link evaluations with fund allocation, saying, “If an assessment has been conducted, there must clearly be penalties based on the results, and incentives should be provided where warranted.”
The NPS is also moving to overhaul its evaluation system. Lee Dong-seop, head of the NPS Stewardship Responsibility Office, said the existing bonus points “no longer have any ability to distinguish among managers.” He explained that the NPS plans to qualitatively evaluate not merely participation in the code, but also the actual implementation of policies, corporate engagement, conflict-of-interest management, and the exercise of voting rights across three areas and seven criteria.
The evaluation results will be used to select outsourced asset managers, allocate additional funds, and withdraw existing funds. The NPS is considering establishing evaluation criteria by the end of this year after conducting due diligence and simulations of managers in October and November, followed by its first evaluation in May next year. It plans to reflect the May evaluation scores in the two regular evaluations held in May and November and apply them to the selection of new outsourced asset managers as well.
The Democratic Party of Korea is also supporting the initiative through legislation. An amendment to the National Pension Act introduced in March by Democratic Party of Korea lawmaker Kim Yoon as the lead sponsor would require the degree to which outsourced asset managers fulfill their stewardship responsibilities to be evaluated and reflected in their selection and assessment. Kim Nam-geun has also proposed an amendment to the Act on Corporate Governance of Financial Companies that would stipulate financial companies’ stewardship responsibilities in law and establish an evaluation system for related activities.
[email protected] Song Ji-won Reporter