|National Pension Service headquarters in Jeonju / Yonhap|
By Lee Min-hyung
The National Pension Service (NPS) has been hit hard by the global banking crisis, as the state-run pension fund holds stocks and bonds worth hundreds of billions of won in ill-fated overseas financial institutions, which are teetering on the brink of collapse.
According to data from the fund, the NPS invested in Credit Suisse bonds worth 135.4 billion won ($103.5 million) as of the end of 2022. The pension fund also has stocks and bonds in the now-bankrupt Silicon Valley Bank worth 138.9 billion won. It also invested 3.5 billion won in Signature Bank stocks.
"More than 99 percent of Credit Suisse bonds we invested in are senior bonds (which take priority over unsecured debt)," a spokesperson at the NPS said. "We will keep watching the global financial market carefully and do our utmost for risk management."
Other data from the U.S. Securities and Exchange Commission also showed that the NPS holds stocks in the crisis-hit First Republic Bank worth more than 40 billion won as of the end of 2022.
The escalating banking crisis abroad is increasing pressure on the NPS at a critical time, as the fund recently reported its worst investment losses last year, since the pension fund began operations back in 1988. Last year alone, the NPS reported a loss of 79.6 trillion won when the global stock and bond markets went into a tailspin.
The pension fund attributed the investment losses to overseas factors, such as the outbreak of war between Russia and Ukraine and financial unrest here and abroad triggered by interest rate hikes.
Because there are no clear signs that the ongoing financial uncertainty will end anytime soon, the NPS may continue to display dismal performance in its investment returns this year again, unless global financial markets bounce back after the U.S. Federal Reserve ends its monetary tightening cycle around the end of this year.
Earlier this year, NPS Chairman Kim Tae-hyun, however, said that he expected a rosier outlook ahead for 2023, saying that the performance of the fund will gradually recover by the end of this year.
Market experts underscored the importance of revamping the governance structure of the NPS.
"The NPS does not have autonomy in key decision-making regarding its investments due to a number of reasons, such as the government's pressure to help rekindle the local stock market and collective behavior of some retail investors," Nam Jae-woo, a researcher at the Korea Capital Market Institute, said.
"On top of that, some of the NPS' fund management committee members ― who lack expertise in fund strategy-setting ― have a tough time in responding to the market's excessive demands and pressures. As it is the government that determines the appointment of the members, they are vulnerable to political pressure."