NPS to mull responsible investment system for alternative investments

South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, is poised to consider expanding its responsible investment system — which currently applies only to stock and bond investments — to include alternative investments.

The NPS will consider introducing a policy that favors private equity firms with responsible investment policies when the pension fund selects asset managers for its alternative investments, according to its filing in Korea’s public sector management information disclosure system on Thursday.

“Regarding the application of responsible investment strategies to alternative investment asset classes, NPS will consider the applicability of the law and the specificity of alternative investment asset classes, reviewing the specific method and timing of introduction,” the NPS said.

The pension scheme seeks to bolster responsible investment policies internally by providing incentives to asset managers with such policies when hiring and monitoring managers for alternative investments, which include real estate, infrastructure and private equity.

QUALITY OF RETURN

Responsible investment, also known as ethical or sustainable investing, is an approach that considers environmental, social, and governance (ESG) factors alongside financial performance when making investment decisions.

The NPS's move comes after lawmakers urged it to reinforce responsible investment policies for alternative investments last year.

The NPS’s alternative investments totaled 206.9 billion won ($142.1 billion), 17.1% of its total assets under management of 1,213 trillion won as of the end of 2024.

The state-run pension service, Korea’s largest institutional investor, is mulling measures to reflect the quality of returns, such as a qualitative evaluation of the profit realization process, rather than focusing on the existing, performance-oriented quantitative evaluation to select managers for domestic private equity investments.

NOT RELATED TO HOMEPLUS

The NPS said the step is unrelated to the recent moral hazard issue over MBK Partners Ltd., the owner of  leading domestic supermarket operator Homeplus Co., which filed for corporate rehabilitation with a Seoul court without making efforts to save itself from a financial crunch.

The pension fund is facing the risk of massive losses as it invested 612.1 billion won in Homeplus.

“We are considering incentives for investment firms with responsible investment policies to select external asset managers after the National Assembly requested. It is not linked to the Homeplus fiasco," an NPS official said.

Write to Gyeong-Jin Min at min@hankyung.com
 
Jongwoo Cheon edited this article.