Fund Management Normalization
The National Pension Service (NPS) whose fund management was hindered by the Special Prosecution Team’s extensive investigation into a merger between Samsung C&T and Cheil Industries, will open a fund management committee meeting at the end of this month to normalize fund management. In particular, the meeting draws much attention as the NPS is expected to begin full-scale discussions on how to revamp a procedure for executing its voting rights and the fund management system to prevent a second Samsung C&T Incident.
According to the Ministry of Health and Welfare on January 15, a National Pension Fund Management Committee meeting which was postponed once at the end of last year will be held on January 25. The Ministry of Health and Welfare will devise improvement measures after collecting opinions on the overall operation of the fund headquarters and the fund management system from various representatives. With controversies over the merger of Cheil Industries and Samsung C&T as momentum, the committee is expected to focus on strengthening the independence of the NPS’s voting rights. The NPS decided to vote in favor of the merger at a meeting of its Investment Committee under the Fund Management Headquarters, not asking the Specialized Committee composed of outsiders to vote on the matter at the time of the merger in 2015. The Special Prosecution Team believes that the NPS exercised its voting rights in that manner due to a pressure from high-ranking officials at the Ministry of Health and Welfare including its minister Moon Hyung-pyo (under arrest) who received instructions from the Cheong Wa Dae (the White House of Korea).
The financial investment industry analyzed that the NPS’s vague regulations on the use of its voting rights fueled the incident. According to current voting rights exercise guidelines, when the Fund Management Headquarters is not able to judge whether or not they will vote in favor of a merger proposal, the headquarters can transfer the right to the Specialized Committee. As the headquarters is under the Ministry of Health and Welfare, the headquarters is vulnerable to pressures from the Cheong Wa Dae and the government. For this reason, in October last year, some members of the Specialized Committee submitted a revised bill to amend the "Guidelines for the Exercise of the Voting Rights of the National Pension Service", which allows not the Fund Management Headquarters but the Specialized Committee to exercise voting rights if and when more than three members request it to the Ministry of Health and Welfare.
"We agree on a need to make an improvement to practices to resolve matters about mergers," said a representative of the Fund Management Headquarters. "It is a matter to be pushed forward with by the Ministry of Health and Welfare and the National Pension Fund Management Committee."
In reference to the matter, a spokesperson of the Ministry of Health and Welfare said, "As for the strengthening of the Specialized Committee’s power, we are carefully examining how to enhance the accountability of the committee by referring to overseas cases. We are planning to collect as many opinions as possible on the procedure for executing the voting rights as well as the restructuring of the overall fund management system from representatives on January 25."
The National Pension Fund Management Committee will also discuss an agenda to determine the scope of this year’s target return rates through active fund management. It is also expected that participants will have a discussion on preventing fund managers from quitting the NPS prior to its headquarters’ move to Jeonju, North Jeolla Province in February. "There will be a heated debate among committee members about a reform of the national pension, which lost trust from the general public due to the Samsung C&T Incident," said a person familiar with the current situation at the NPS.