Korea’s $600 Billion Pension Fund to Be More Active Shareholder

(Bloomberg) -- South Korea’s biggest pension fund may be set to make its voice heard at dozens of companies including such heavyweights as Samsung Electronics Co.

National Pension Service, which manages 723 trillion won ($610 billion), has changed its officially listed purpose for holding shares in 56 companies to “general investing” from “non-engagement investing,” according to data from regulatory filings compiled by Bloomberg.

The changes come after Korean regulators relaxed rules last September to make it easier for public pension funds to exercise shareholder rights more actively. It also follows investor calls for Korean authorities to take steps to prevent listed companies from treating minority shareholders unfairly.

The NPS, the largest institutional investor in the nation’s $1.4 trillion stock market, holds a 5% or more stake in about 300 listed companies, according to Bloomberg-compiled data. In addition to Samsung, companies affected by the holding purpose changes so far include steelmaker Posco, Korean Air Lines Co., Namyang Dairy Products Co. and Celltrion Inc., a major biosimilar maker.

“General investing” connotes a less active level than “purpose of engagement,” according to the Financial Services Commission, the nation’s top financial policymaker. As such, the NPS will be limited to contributing to decisions on relatively minor issues such as executive salaries and divided payouts, as opposed to larger issues including dismissal of executives.

For general-investing purposes, NPS will be allowed to file fewer regulatory filings than before on changes in stake-holding, according to the FSC. And that will be an unpredictable risk for companies, Kim Jang-Won, analyst at IBK Securities Co., said.

“Up until now, Korean companies have been able to check NPS’s portfolio adjustments,” Kim said. “But from now on, they will not know NPS’s portfolios in detail, and one day, they may be surprised by important changes in NPS’s stake holdings.”

Not everyone sees the move as a step in the right direction. An association of Korean businessmen issued a statement in October that the NPS’s fund management committee lacks independence and expertise in governance issues, as the panel is controlled by the health ministry.

“While some Koreans say it’s a very meaningful step to boost shareholder rights, others say that it is actually a socialist move” for the government to exert control over companies by using the pension fund, said Chung Chang-Won, an analyst at Nomura International Hong Kong Ltd. “But it is true that South Korea has been lagging far behind the global standard for corporate governance.”

--With assistance from Shinhye Kang.

To contact the reporter on this story: Heejin Kim in Seoul at hkim579@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler

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