The leader of South Korea's National Pension Service Fund investor said the days as a passive investor are coming to an end and that the fund will begin raising its voice to improve corporate governance and the value of its shareholdings.
The state fund, with $258 billion in assets, owns 4% of stocks in the South Korean market. Chairman Jun Kwang Woo said he'll become more vocal as the fund's holdings rise to as much as 8% of the market over the next five years.
“We feel that remaining passive is not necessarily the right thing for the future value of our fund,” Mr. Jun said in an interview in his office in Seoul earlier this month. “We will look at how we can better carry out our fiduciary duty.”
NPS owns 6% of Hyundai Motor Co., the nation's biggest carmaker, and holds 5% stakes in Samsung Electronics Co., the world's second-largest maker of mobile phones, and Posco, the third-biggest global steelmaker. The fund rejected 132 proposals put to shareholders by South Korean companies last year, according to data provided by NPS. That's equal to 6.6% of proposals, and is up from the 5.4% rejected in 2008.
South Korea's institutional investors approved 98.13% of agendas put to shareholders, Korea Exchange Inc., the nation's bourse operator, said in a March statement, after analyzing companies that held shareholders' meeting between Jan. 1 and mid-March. South Korea's corporate governance ranking is falling, according to Jamie Allen, secretary general of the Hong Kong-based Asian Corporate Governance Association, citing a report on corporate governance in Asia that is expected to be released in late September.
The fund, which still has 70% of its investments in domestic fixed-income, plans to boost stocks to 30% by 2015, from about 20% now. The NPS made a 10% gain on its investments last year, driven by higher stock prices as South Korea's Kospi index surged 50%.
“The ultimate goal is to have greater corporate value, and that should be good for shareholder value,” Mr. Jun said. He is a former vice chairman of Woori Finance Holdings Co. and led South Korea's Financial Services Commission before joining the fund in December 2009.
Henry Seggerman, president of New York-based International Investment Advisers, which manages the $25 million Korea International Investment Fund, said he'll be watching to see if NPS takes a stand on corporate governance.
“If issues ever arise in which shareholder value is diminished by mismanagement, it will be great to see NPS vote its large stake against management,” Mr. Seggerman said.
NPS aims to almost double its overseas investments to 20% by 2015 and may look to funds including the $205.5 billion California Public Employees' Retirement System, Sacramento, and C$129.7 billion (US$ 123.3 billion) Canada Pension Plan Investment Board, Toronto, as a guide for how to grow, according to Mr. Jun.
“NPS is large but still young, and its share of international assets is much smaller than many other large pension funds,” he said. “Their experience in broadening their investment base beyond their domestic market gives us good lessons.”
The fund last month agreed to buy a 51% stake in a shopping mall near Paris from Hammerson, the U.K.'s third-largest real estate investment trust, to add to its property investments in London and Berlin. It also said last month it's in talks to buy into a U.S. oil pipeline to diversify its holdings.
Mr. Jun said NPS will continue to hunt for “landmark” buildings in advanced economies.
NPS, which is overseen by the Ministry of Health & Welfare, covers private-sector employees and the self-employed. It forecasts increasing assets to $416.8 billion by 2015.
