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Pension funds

NPS rewards investment managers with hefty bonuses

CIO's bonus exceeds 98% of his annual salary

By Nov 24, 2021 (Gmt+09:00)

NPS Chief Executive Kim Yong-jin delivers a keynote speech at ASK 2021 in October
NPS Chief Executive Kim Yong-jin delivers a keynote speech at ASK 2021 in October

South Korea’s National Pension Service (NPS), the world’s third-largest pension fund with 930 trillion won ($781.8 billion) in total assets under management, is expected to dole out bonuses averaging 75 million won to its investment portfolio managers for this year.

The bonus follows as the pension fund’s three-year performance from 2018 to 2020 met the minimum standard for incentives, surpassing Korea’s average consumer price growth rate for the past three years, 0.8%. NPS Investment Management saw a negative return of 0.89% in 2018 and positive returns of 11.34% and 9.58% in 2019 and 2020, respectively. The performance estimates are based on a 50% return from the previous year, a 30% return from two years ago, and a 20% of return from three years ago.

At its fund management committee meeting held in July, NPS approved the payments of an average 86.7% of annual salaries -- a sum of the target performance bonus of 70.7% and the organizational performance bonus of 16% -- to its investment managers. The bonus for Chief Investment Executive Ahn Hyo-joon was set to be 98.4% of his annual salary.

The pension fund will hold another fund management committee meeting on Dec. 3 to vote to secure an insufficient budget of 7 billion won in incentives. On top of an incentive budget of 14.6 billion won NPS secured last year, a combined worth of 21.6 billion won will be paid to the investment managers as a bonus. Given that NPS employs around 290 investment managers, the bonus per person is estimated to be around 75 million won although the incentive depends on the performance of individuals and teams. NPS’ average incentives per person were 16.8 million won in 2017, 46.8 million won in 2018, 34.3 million won in 2019 and 56.6 million won in 2020. 

“The bonus is the highest level of incentives in the domestic pension fund industry, aiming to appreciate the performance growth as well as secure its core investment managers," a source said. In early November, its infrastructure division head Kim Jee-Yeon and real estate division head Kim Hyun-Soo were reported to have tendered their resignations. After officially leaving NPS in end-November, the two Kims are both reportedly moving to the private sector.

On Nov. 29, NPS announced it has earned 67.4 trillion won ($56.5 billion) operating profits for the first three quarters of this year. The world's third largest pension fund raised 67.3 trillion won in profits from equities, bonds and alternative investments and 100 billion won from welfare and other sectors. The rate of return as of the end-third quarter was 8%, according to its preliminary data.

Write to Jae-fu Kim at hu@hankyung.com

Jihyun Kim edited this article.

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