Korea No.1 Fund to Find Voice in Corporate Governance

National Pension Service, South Korea’s biggest investor, said its days as a passive investor are coming to an end and that it will begin raising its voice to improve corporate governance and the value of its shareholdings.

The state fund, with $258 billion in assets, owns 4 percent of stocks in the South Korean market. Chairman Jun Kwang Woo said he’ll become more vocal as the fund’s share holdings rise to as much as 8 percent of the market over the next five years.

“We feel that remaining passive is not necessarily the right thing for the future value of our fund,” Jun, 61, said in an interview in his office in Seoul on Sept. 9. “We will look at how we can better carry out our fiduciary duty.”

NPS owns 6 percent of Hyundai Motor Co., the nation’s biggest carmaker, and 5 percent stakes in Samsung Electronics Co., the world’s second-largest maker of mobile phones, and Posco, the third-biggest steelmaker globally. The fund rejected 132 proposals put to shareholders by South Korean companies last year, according to data provided by NPS. That’s equal to 6.6 percent of proposals, and is up from the 5.4 percent rejected in 2008.

South Korea’s institutional investors approved 98.13 percent of agendas put to shareholders, Korea Exchange Inc., the nation’s bourse operator, said in a March 25 statement, after analyzing companies that held shareholders’ meeting between Jan. 1 and mid-March. The nation’s ranking for how well its companies are governed is falling, according to Jamie Allen, secretary general of the Hong Kong-based Asian Corporate Governance Association, citing a report on corporate governance in Asia that is expected to be released next week.

‘Ultimate Goal’

The fund, which still has 70 percent of its investments in domestic fixed income assets, plans to boost stocks to 30 percent by 2015, from about 20 percent now. The NPS made a 10 percent gain on its investments last year, driven by higher stock prices as South Korea’s Kospi index surged 50 percent.

“The ultimate goal is to have greater corporate value, and that should be good for shareholder value,” Jun said. He is a former vice chairman of Woori Finance Holdings Co. and led South Korea’s Financial Services Commission before joining the fund in December last year.

Henry Seggerman, president of New York-based International Investment Advisers, which manages the $25 million Korea International Investment Fund, said he’ll be watching to see if NPS begins taking a stand on corporate governance.

“If issues ever arise in which shareholder value is diminished by mismanagement, it will be great to see NPS vote its large stake against management,” Seggerman said.

NPS aims to almost double its overseas investments to 20 percent by 2015 and may look to funds including the California Public Employees’ Retirement System and Canada Pension Plan Investment Board as a guide for how to grow, according to Jun.

‘Good Lessons’

“NPS is large but still young, and its share of international assets is much smaller than many other large pension funds,” Jun said. “Their experience in broadening their investment base beyond their domestic market gives us good lessons.”

The fund last month agreed to buy a 51 percent stake in a shopping mall near Paris from Hammerson Plc, the U.K.’s third- largest real estate investment trust, adding to property investments in London and Berlin. It also said last month it’s in talks to buy into a U.S. oil pipeline to diversify its holdings.

Jun said NPS will continue to hunt for “landmark” buildings in advanced economies.

NPS, which is overseen by the Ministry of Health & Welfare, covers private-sector employees and the self-employed. It forecasts increasing assets to 488 trillion won by 2015.

To contact the reporter on this story: Saeromi Shin in Seoul at sshin15@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net

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