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NPS Pays Tens of Billions of Won in Consignment Fees Despite Huge Losses
Consignment Fees Need to Be Controlled
NPS Pays Tens of Billions of Won in Consignment Fees Despite Huge Losses
  • By Yoon Young-sil
  • June 28, 2019, 09:47
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The National Pension Service pays tens of billions of won in commissions to private asset management companies that operate its stock investment funds. 

The National Pension Service (NPS) invested 108.90 trillion won (US$94.16 billion), or 17.1 percent of its total assets, in domestic stocks last year. A 1 percentage point change in the earnings rate either increases or decreases the national retirement savings by 1 trillion won (US$864.68 million). While the earnings rate is so important, the NPS’ domestic stock returns were minus 16.77 percent last year.

Its rate of profit in the past five years also shows ups and downs. It recorded minus 5.3 percent in 2014 but swung to 1.6 percent in 2015, 5.6 percent in 2016 and 26.3 percent in 2017. This is largely due to the fact that the domestic stock market is vulnerable to external factors. However, commission fees in the process of operation are another factor of lower earnings rates.

Not only the NPS but also mutual aid associations show a poor performance in domestic stock returns. The Korean Teachers' Credit Union, the largest mutual aid association in the country with 26 trillion won (US$22.48 billion) of assets, invests approximately 2 trillion won (US$1.73 billion) in stocks. It made a huge loss with the investment in domestic stocks last year. In addition, the Public Officials Benefit Association (POBA), Teachers Pension (TP) and Government Employees Pension Service (GEPS) all showed a poor profit rate from domestic stock operation because of the bearish market, recording -12.8 percent, -18.15 percent and -17.9 percent, respectively. This is why some point out that they were able to partially improve their returns on investment if they controlled commission fees.

In fact, the NPS deputes a part of investments in domestic stocks to asset management companies and pays 0.3 percent to 0.4 percent of commission fees. However, the stock returns from consignment operation have a lower figure. Centrist Party for Democracy and Peace (PDP) lawmaker Kim Kwang-soo, who is also a member of the legislature's Health and Welfare Committee, said that the earnings rate of direct domestic stock investment stood at -16.7 percent and the profit rate of consignment at -17.08 percent last year. Regardless of the lower rate of returns, the NPS paid 119.90 billion won (US$103.67 million) of commission fees.