The reappointment of Korea's National Pension Service chief investment officer (CIO) Ahn Hyo-joon is believed to set a precedent for future CIOs and bring in more long-term strategies at the fund, industry experts said.

Later this year, Ahn will become NPS’s first CIO to serve in the position for more than three years. The announcement on July 29 that Ahn would stay on for another year until October 2022, marks the first time that the NPS has extended a CIO’s contract twice since the fund was established in 1988. 

Ahn Hyo-joon

Since Ahn took over as CIO in October 2018, the world's third-largest pension fund posted its strongest return of 11.31% in 2019, and 9.7% in 2020 despite the pandemic, outperforming benchmarks across all asset classes for the first time.

NPS had W892 trillion ($780 billion) in assets under management as of the end of May. 

Chairman and chief executive officer Kim Yong-jin said in an announcement that he expects Ahn's extended contract to set a precedent for long-term CIO tenures at foreign pension funds, if his competency is well recognised. 

Ahn will continue to enhance the capacity of the world’s third-largest pension fund to invest globally, including in alternative investments, and maintain organisational stability, a spokesperson told AsianInvestor.

Since 2018, Ahn has enhanced internal governance to increase return, and strengthened links to global pension funds and major asset managers such as APG and Allianz to increase overseas and alternative exposure, the spokesperson said.

LONG-TERM CONSISTENCY


 

 

“Governance was one of the challenges NPS faced with its rapid growth trajectory,” said Andrew Shin, head of investments Korea with Willis Towers Watson (WTW).

The previous “2+1” tenure - a two-year contract renewed for one year - may not encourage long-term strategy formulation and implementation, Shin told AsianInvestor. “For example, if you know you’re only given a certain amount of time, it may by design encourage one to focus more on imminent initiatives at the expense of longer-term strategies.”

Andrew Shin

 

NPS wants to hit W1 quadrillion ($875 billion) of AUM in the next few years. It has been struggling to raise its alternative asset investments to 15% of AUM by 2025. They stood at 10.6% at the end of May. It wants to raise them to 13.2% by the end of this year.

“It is hard to say that extending the CIO’s term alone will automatically contribute to enhanced performance as there are many other determinants. However, a longer-term will help to enable the CIOs to formulate or implement longer-term strategic initiatives that will be beneficial to the pension fund’s performance,” Shin said.

ALL ABOUT PEOPLE

Most recently, the global stock rally helped NPS post a cumulative 5.82% return, or W48.6 trillion ($42 billion), in the first five months of this year.

“NPS has largely benefited from the performance of public stocks and bonds in the past 2.5 years,” noted Diego López, managing director of Global SWF, a data platform tracking global sovereign wealth funds and public pension funds.

Diego López

“However, if there is a market correction and the shift to private markets proves to be necessary, the CIO position will be held accountable for a successful transition in asset allocation. In that context, having a CIO that knows the institution and the stakeholders well is probably a good idea,” López told AsianInvestor.

After NPS moved its headquarters out of Seoul in 2017, it has been struggling to retain employees. “The hiring process of Mr Ahn itself was very challenging in 2018, so trying to retain him as CIO is natural and positive,” López told AsianInvestor.  

Noting that NPS is also in the process of hiring over 50 investment managers, López thinks it is “paramount” to have someone highly seasoned and experienced within NPS to lead them.

Also read: NPS embarking on investing hiring drive to fill its brain drain

The heads of investment at Korean asset owners, especially in the public sector, do not tend to stay as long as their global peers, WTW’s Shin noted.

Examples of long-term serving CIOs in Western pension funds include the California State Teachers' Retirement System (CalSTRS)’s 21 years, and SBA Florida’s 13 years in the United States, and PensionDanmark’s 18 years in Europe.

However, some of the most sophisticated pension funds from Canada and the Netherlands, for example, have rotated their CIOs more often, noted López.

Fund performance, the patience of stakeholders, and the willingness to stay in the position, all contribute to how long a CIO remains in the role, he said.