SOUTH KOREA - National Pension Service, South Korea's biggest investor, said its days as a passive investor are coming to an end and that it will begin raising its voice to improve corporate governance and the value of its shareholdings.
The state fund, with $258bn in assets, owns 4% of stocks in the South Korean market. Chairman Jun Kwang Woo said he'll become more vocal as the fund's share holdings rise to as much as 8% of the market over the next five years.
"We feel that remaining passive is not necessarily the right thing for the future value of our fund," Jun, 61, said in an interview in his office in Seoul on September 9. "We will look at how we can better carry out our fiduciary duty."
NPS owns 6% of Hyundai Motor, the nation's biggest carmaker, and 5% stakes in Samsung Electronics, the world's second-largest maker of mobile phones, and Posco, the third-biggest steelmaker globally. The fund rejected 132 proposals put to shareholders by South Korean companies last year, according to data provided by NPS. That's equal to 6.6% of proposals, and is up from the 5.4% rejected in 2008.
South Korea's institutional investors approved 98.13% of agendas put to shareholders, Korea Exchange, the nation's bourse operator, said in a March 25 statement, after analyzing companies that held shareholders' meeting between January 1 and mid-March. The nation's ranking for how well its companies are governed is falling, according to Jamie Allen, secretary general of the Hong Kong-based Asian Corporate Governance Association, citing a report on corporate governance in Asia that is expected to be released next week.
The fund, which still has 70% of its investments in domestic fixed income assets, plans to boost stocks to 30% by 2015, from about 20% now. The NPS made a 10% gain on its investments last year, driven by higher stock prices as South Korea's Kospi index surged 50%.
"The ultimate goal is to have greater corporate value, and that should be good for shareholder value," Jun said. He is a former vice chairman of Woori Finance Holdings and led South Korea's Financial Services Commission before joining the fund in December last year.
Henry Seggerman, president of New York-based International Investment Advisers, which manages the $25m Korea International Investment Fund, said he'll be watching to see if NPS begins taking a stand on corporate governance.
"If issues ever arise in which shareholder value is diminished by mismanagement, it will be great to see NPS vote its large stake against management," Seggerman said.
NPS aims to almost double its overseas investments to 20% by 2015 and may look to funds including the California Public Employees' Retirement System and Canada Pension Plan Investment Board as a guide for how to grow, according to Jun.
This week's edition of Professional Pensions is out now.
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