South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, is set to consider expanding its responsible investment system, which currently applies to only stock and bond investments, to include alternative investments.
NPS plans to mull introducing a policy that prefer private equity firms with responsible investment policies when the state-run pension fund selects asset managers for its alternative investments, according to its filing to South Korea’s public sector management information disclosure system on Thursday.
“Regarding the application of responsible investment strategies to alternative investment asset classes, NPS will consider the applicability of the law and the specificity of alternative investment asset classes, reviewing the specific method and timing of introduction,” NPS said.
NPS seeks to reinforce responsible investment policies internally by providing incentives to asset managers with such policies when hiring and monitoring managers for alternative investments, which include real estate, infrastructure and private equity.
QUALITY OF RETURN
Responsible investment, also known as sustainable or ethical investing, is an approach that considers environmental, social, and governance (ESG) factors alongside financial performance when making investment decisions.
The move came after lawmakers urged NPS to strengthen responsible investment policies for alternative investments last year.
NPS, South Korea’s largest institutional investor, is considering measures to reflect quality of return such as qualitative evaluation of the profit realization process rather than focusing on the existing performance-oriented quantitative evaluation to select managers for domestic private equity investments through system reforms.
NOT RELATED TO HOMEPLUS
NPS said the step is not related to the recent moral hazard issue over MBK Partners Ltd., the owner of a leading domestic hypermarket operator Homeplus Co., which filed for corporate rehabilitation with a Seoul court without any efforts to save itself from a financial crunch.
NPS is facing risks of massive losses as the pension fund invested 612.1 billion won in Homeplus.
“We are considering incentives for investment firms with responsible investment policies to select external asset managers after the National Assembly requested. It is not linked to Homeplus fiasco.”
By Gyeong-Jin Min
min@hankyung.com
Jongwoo Cheon edited this article.
