Korea to let securities firms manage $43 bn public fund investment pool

South Korea said on Wednesday it aims to boost returns on 62.1 billion won ($42.7 billion) in the public fund investment pool by entrusting some of the money to securities firms to improve fiscal conditions and capital markets in Asia’s fourth-largest economy.

The government announced measures to reform the public fund investment pool system, in which private financial companies manage a pool of surplus funds from public institutions and pension funds. Mirae Asset Global Investments Co. and Samsung Asset Management currently manage the pool of 62.1 trillion won as lead fund managers.

The country is set to increase the pool, appoint securities firms as lead fund managers and diversify fund management strategies.

“We plan to increase the investment pool by including funds held by government-related organizations and promote competition by expanding lead fund managers to securities firms,” said Acting President and Minister of Economy and Finance Choi Sang-mok.

“We will improve the management performance of the public fund investment pool and diversify management strategies to develop the capital market and strengthen fiscal soundness.”

The move came as South Korea’s debt-to-gross domestic product (GDP) ratio rose to 47.4% last year from 41.1% in 2020.

On the other hand, the public sector did not entrust much money to the investment pool. Only 19.7% of the total 82 trillion won in surplus funds of public institutions was entrusted to the pool.

SECURITIES FIRMS

South Korea plans to entrust funds managed by public organizations and money held by public service-related institutions to the pool.

The country will allow securities firms to participate in the pool management as lead fund managers after requiring brokerage houses to register for private equity business.

The authorities have appointed only asset management companies as lead fund managers.

The government is poised to name lead fund managers in September after revising the selection criteria for securities firms in the first half.

MEDIUM- AND LONG-TERM ASSETS, ALTERNATIVE INVESTMENTS

The country will offer incentives for investments in medium- and long-term assets with higher returns while creating new evaluation items to encourage public funds to invest in such assets.

Medium- and long-term assets returned 6.51% last year, nearly double the 3.73% of money market funds (MMFs).

South Korea plans to improve conditions for alternative investments while simplifying screening processes to expand alternative investments to international financial institution asset management products and others.

The country will also introduce dollar MMFs in the second half for public funds and institutions holding foreign currencies.

Write to Jeong Min Nam at peux@hankyung.com
 
Jongwoo Cheon edited this article.