South Korea's bureaucrats, particularly at the Ministry of Finance and Economy (MoFE), are urging 38 government-related pension funds to chip in a combined W5 trillion ($2.5 billion) into a proposed management entity, in order to get more funds into the local stock and bond markets û and support domestic securities companies. According to fund managers and brokers in Seoul, up to 40% will be slated for domestic equities, probably index funds.

The bulk of this would probably come from some of the leading occupational retirement schemes, such as the Government Employees Pension Fund, which dates back to 1960, and the Military Pension Scheme, the Private School Teachers Pension and the postal savings system. These 38 funds combined have W17.8 trillion in pension money.

This proposal is not an emergency measure as the government was supposed to have founded a committee of academics, market professionals and bureaucrats to oversee this new institution in August and appoint service providers such as investment managers, rating agencies and trustees. This committee is still being hammered out.

This is partly a response to a legal quirk in Korea's legal code that treats these pension funds as individual, not institutional investors. This means these funds can invest in mutual funds or directly into securities, but are barred from discretionary investment management accounts. The fees on mutual funds in Korea are quite high, and come with stiff broker fees as well, which is one reason why these funds shy away from them. And they lack the expertise to invest directly themselves.

Changing the law itself is politically difficult. Institutions are regulated by MoFE, while individuals are regulated by the Ministry of Health and Welfare, which is loathe to lose its grasp.

Instead, MoFE is running a circle around its bureaucratic rival and pushing for a new entity that would be legally an institutional investor but could commingle pension money.

The move follows on the inaugural outsourcing to third-party fund managers by the $53 billion National Pension Corporation (NPC), manager of the nation's compulsory National Pension System, which covers all workers. NPC is also considered an individual investor. Its response will be interesting; surely it too would prefer less expensive discretionary management of its assets.

Fund managers have mixed views of this proposal. On the one hand, they would love a piece of the action. "If done properly this could be a boon," says one.

But 'done properly' is always the hard part. These days transparency is a buzzword in Seoul, but Korean bureaucrats and politicians are under enormous stress to prop up strategic but struggling firms. The risk of these funds being directed to support, say, Hynix is all too real.

Furthermore, Korea has been down this road before, with only mixed success. Falling markets in 1990 prompted the government to establish a huge so-called Stock Market Stabilization Fund. When it was first launched, the sheer weight of money entering the stock market drove it up, but the underlying fundamentals remained poor.

Without positive corporate earnings, the market continued to sag û leaving the government out of the money. For the second half of the decade it struggled to sell off the fund, finally ridding itself of a troublesome venture in 1999's bull run.