[Exclusive] National Pension Service to hand off voting rights on domestic stocks to private sector

Welfare ministry to make first report at fund management committee on the 5th

To be transferred in stages to external asset managers

South Korea’s Ministry of Health and Welfare is pushing a plan to transfer voting rights for the National Pension Service’s domestic equity holdings—worth about 130 trillion won—to private external asset managers. The idea is to energize shareholder activism in the private sector and lift the value of undervalued companies. As the NPS’s shareholder rights, previously exercised directly, would be significantly curtailed, signs of concern and pushback are being detected both inside and outside the agency.

According to the financial investment industry on the 4th, the ministry plans to convene the second meeting this year of the NPS Fund Management Committee on the 5th and report an agenda item to change the structure of outsourced management for domestic equities from the existing “discretionary investment mandate” to a “single-manager fund” (fund commitment) model.

If the NPS’s outsourcing format shifts from mandate-based management to fund commitments, the title to the portfolio shares and the voting rights would move from the NPS to private managers. Until now, voting rights attached to shares purchased by external managers belonged to the NPS as the investor and were exercised on its behalf; going forward, each external manager would exercise voting rights at the portfolio companies.

Analysts say the shareholder-rights framework for pension funds is also being revamped in step with the government’s corporate value-enhancement policy. The NPS has conducted shareholder activities through its Stewardship Responsibility Committee, made up of outside experts. The government, viewing the need to make shareholder engagement more professional and diversified to bolster the value of the domestic stock market, is pursuing the plan. It intends to start with a pilot application to “responsible investment funds” that reflect ESG (environmental, social and governance) factors, and then expand it.

Within the NPS, some voices argue the move should be approached cautiously, citing concerns about a reduction in authority. A source at the fund management headquarters said, “Because there are aspects that conflict with the stance we have taken in advocating stronger stewardship codes for the pension, this needs to go through sufficient discussion.”

Reporter Min Kyung-jin min@hankyung.com