Critics say the National Pension Service amplified market volatility by delaying stock sales and shifting asset-allocation rules amid political pressure.
Kim Sung-joo, chairman of the National Pension Service, speaks during a policy briefing for government ministries presided over by President Lee Jae Myung at the Blue House State Guest House in Seoul on July 16.YONHAP
Suh Kyoung-ho
The author is an editorial writer at the JoongAng Ilbo.
“Rumor has it that the National Pension Service [NPS] aggressively bought domestic stocks ahead of the local elections to boost share prices. Did it actually purchase them?” President Lee Jae Myung asked.
“Absolutely not,” replied Kim Sung-joo, the chairman and CEO of the NPS. “We simply held on to the stocks we already owned, and their value rose as the Kospi climbed.”
The exchange took place on July 16 during a presidential briefing by the Ministry of Health and Welfare and the National Pension Service.
When news of the conversation spread through online chat rooms frequented by professors and journalists, reactions were deeply cynical. “A carefully scripted dialogue?” one person wrote. Others dismissed it as an attempt to create an alibi for the future.
The skepticism stemmed from a simple point: The controversy is not about whether the pension fund bought stocks. The real issue is that, despite soaring valuations, it chose not to sell them in accordance with its asset-allocation principles.
In January, the National Pension Service raised its target allocation to domestic equities from 14.4 percent to 14.9 percent and temporarily suspended rebalancing measures that would normally require it to reduce stock holdings once they exceeded the permitted range. In May, it raised the target again, from 14.9 percent to 20.8 percent, and expanded the allowable deviation under its strategic asset-allocation framework.
The move marked a sharp departure from the pension fund’s longstanding investment philosophy. In the past, it sought to realize gains during market rallies while minimizing disruptions to investors. This year, however, it effectively moved in the opposite direction.
Critics argue that the main beneficiaries were foreign investors, who sold a net 149 trillion won ($100 billion) worth of Korean stocks in the first half of the year. Those sales accelerated the depreciation of the Korean won as foreign investors converted their proceeds into dollars.
Barclays delivered a particularly scathing assessment in a report published last month, arguing that the NPS had functioned “not as a stabilizer but as an amplifier” in Korea’s financial markets during the first half of the year.
The pension fund posted an investment return of 18.82 percent last year, the highest since its investment management division was established in 2000. That achievement is welcome news, but the institution’s primary responsibility is not maximizing short-term profits. As the country’s ultimate safeguard for retirement security, the NPS must prioritize long-term returns and stability.
Refusing to sell stocks may have temporarily boosted performance figures, but it also damaged public confidence in the pension fund’s independence. Public Pension Action, a coalition of more than 300 civic and labor organizations, criticized the May decision to increase the target allocation to domestic equities. The group warned that excessive government intervention in pension management undermines the fund’s governance.
Kim Sung-joo has rejected claims that the NPS bears responsibility for volatility in the Korean stock market. In a recent social media post, he argued that the fund’s holdings account for only 6 to 7 percent of the market capitalization of domestic equities and that its influence should not be overstated.
That defense is unconvincing. Both in January, when the Kospi traded around the 4,000-5,000 range, and in May, when it surged toward 7,000 and 8,000, the pension fund chose to postpone rebalancing. Retail investors initially cheered the decision, relieved that such a powerful institution was not selling. They are now paying the price.
The market has become so volatile that investors joke about the “roller-Kospi,” yet the pension fund has done little to cushion the swings. Had it reduced its stock exposure earlier in the year, it could have helped cool the market’s speculative excesses and provided support during subsequent declines.
What, then, lay behind the pension fund’s questionable decisions in January and May?
Perhaps it was seven months earlier, when Kim had only recently taken office as chairman of the NPS, he was addressed by President Lee.
“I’m not sure whether this is the right place to say it, but it is clear that the Korean stock market is undervalued,” Lee said. “One must be careful when discussing the market because it is risky territory, but the National Pension Service also needs to think carefully about the matter.”
The president pointed to the undervaluation of Korean equities and called on the pension fund to “think carefully.” It is not difficult to guess what sort of thinking he had in mind.
Even if the pension fund had been led by a financial expert steeped in the markets, selling stocks under such circumstances would hardly have been easy.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
