Fallout from relocation of the sovereign wealth fund and mutual aid associations... KIC union also pushes back amid warning of 8.6 trillion won in losses [fn Market Watch]

[Financial News]  The debate over relocating the sovereign wealth fund and major mutual aid associations is expanding to include concerns about asset-management competitiveness and investor losses.
With a study finding that relocating five major mutual aid associations could result in economic losses of nearly 8.6 trillion won over the next 10 years, the KIC labor union has also conveyed its opposition to the relocation to political circles. Critics say that, separate from the policy rationale of balanced regional development, the potential damage to the profitability of institutional investors managing hundreds of trillions of won in assets must be considered.
According to the financial investment industry on the 10th, the Korea Policy Evaluation Institute (KIPE) recently estimated that relocating five major mutual aid associations for teachers and school staff, civil servants, military personnel, police officers and firefighters would result in net economic losses of 8.5886 trillion won over 10 years. The estimate reflects the costs of moving offices and IT systems, higher operating expenses, and the possibility of lower investment returns due to fewer investment opportunities.
The institute analyzed that the amount of these losses was equivalent to an annual 1.13-percentage-point reduction in the interest rate paid to members. Since the mutual aid associations are funded by member contributions and investment returns, the costs of relocation could be passed on to members.
The key issue is competitiveness in alternative investments. As of last year, alternative investments accounted for 61.5% of the five major mutual aid associations’ portfolios, about four times the National Pension Service’s 15.95%. In private markets such as private equity funds (PEFs), real estate and infrastructure, networks with global asset managers and investment banks (IBs) have a significant impact on securing investment opportunities and negotiating deal terms.
The loss of skilled professionals is another factor. In the National Pension Service’s relocation to Jeonju, cited by the institute, the turnover rate among investment staff rose from 5.6% to 14%. In a survey of mutual aid association employees, 71.1% also said they would consider changing jobs if their organizations relocated outside the capital region.
KIC, the sovereign wealth fund, has also responded. On the 5th, KIC labor union chair Jang Ju-ho met with Mo Gyeong-jong of the Democratic Party of Korea (DPK) and conveyed concerns that relocating KIC’s headquarters outside the capital region would undermine its competitiveness in managing national wealth.
As of the end of last year, KIC manages $232 billion (about 333 trillion won). It is also approaching the launch of a Strategic Investment Account, which the government is pursuing at a scale of at least 20 trillion won, making this a critical time to secure global investment networks and skilled professionals. The account will provide long-term capital to strategic industries such as semiconductors, artificial intelligence (AI) and data centers.
Chair Jang argued, “Even a decrease of just 0.1 percentage point in investment returns could reduce national wealth by at least 300 billion won a year.” He explained that keeping KIC’s headquarters in Seoul while supplying capital to strategic industries outside the capital region would be a practical alternative for balanced regional development. Rep. Mo also agreed that the sovereign wealth fund’s investment-management competitiveness was important and expressed his willingness to maintain ongoing communication.
Meanwhile, voices in the investment banking (IB) industry are calling for the policy benefits of relocation to be assessed separately from the possibility that it could weaken asset-management competitiveness.
A source in the investment banking industry said, “Institutional investors’ competitiveness comes not only from the size of their assets under management but also from investment information, skilled professionals and global networks,” adding, “Separate from the effects on balanced regional development, the additional costs of relocation and its impact on returns need to be carefully assessed.”

[email protected] Kim Gyeong-a Reporter