CS, Morgan Stanley to provide comfort for Korean grannies

As KoreaÆs pensionsÆ shortfall threatens the future of its retirees, the National Pension Service turns to Wall Street for a solution - but at what cost?
After working like a dog all your life, spending your incontinent, twilight years in poverty is a bleak prospect, and yet the shortfall within KoreaÆs pension funds looks set to condemn its pensioners to an old age of watching their pennies.

æInvestment SolutionsÆ at Credit Suisse and æGlobal Portfolio SolutionsÆ at Morgan Stanley have been given the job of strategically partnering with the National Pension Service to come up with their own solutions for KoreaÆs senior citizens û as first reported by AsianInvestor in March.

The NPS is AsiaÆs largest pension fund outside of Japan and has $200 billion under management. However, its unfunded liability today is 33% of GDP, compared to 100-200% for many other OECD nations. Only 65% of Korean workers will receive any benefit from the NPS or any government-funded pension plan. A survey of 1,000 Seoul office workers conducted by the Korea Chamber of Commerce and Industry, which found that 45% said they had nil savings earmarked for retirement.

Neither CS nor Morgan Stanley would report the exact level of fees they are receiving, but CS says it would be remunerated ôattractivelyö. CS does not plan to hire any more staff in Korea to undertake this job, but Morgan Stanley expects it will make some additional hires.

ôIts not only managing assets of NPS, but also providing risk management, governance, training, and technology transfer,ö says Peter Ryan-Kane, Credit SuisseÆs head of products, investment solutions and marketing for asset management in Asia Pacific. ôNPSÆ needs are broad and include assistance with asset allocation, risk budgeting, governance structure, policy setting, investment management, decision making, middle office, back office, systems, and advisory services. The extent of improvement in the overall investment program is far broader than measures of return versus static benchmarks.ö

If there is any difference between the advice of CS and Morgan Stanley, then the NPS decides on the ultimate strategy.

So short of working until they drop, or increasing dramatically the level of their pension contributions, the Korean worker has to be hopeful that this Wall Street intervention will be fruitful. In its five-year plan, the NPS has said that it plans to increase its equity allocations from the current 11.6% up to 30%, to double overseas investments to 20%, and to increase alternatives allocations tenfold from 1% to 10%. Therefore, given this move up the risk curve, plus the obligation to pay Wall Street-style fees, the stakes have just become a lot higher for KoreaÆs elderly.