Think you know all the right people in Seoul? Perhaps not for much longer: the financial elite is going through massive turnover, in most cases heralded by the arrival of the new president, Lee Myung-bak. His conservative Grand National Party (GNP) was elected to the Blue House in February and won control of the National Assembly in parliamentary elections held on April 8.
Rotation among bureaucrats and managers at state-owned pension funds is normal in Korea, but this time the changes are sweeping. The GNP has been out of power for eight years, and the echelons of Korean finance have been dominated by political appointments made by the Uri Party of ousted president Roh Moo-hyun.
Now the new government is flexing its muscle. Via the relevant ministries, it has reportedly asked every CEO and CIO at state-controlled investment funds to submit a letter of resignation. The Blue House is now reviewing which people it will leave in place—and whose 'resignation' will be accepted.
The first organisation to feel the impact was the $230 billion National Pension Service. President Kim Ho-Shik and CIO SK Oh have recently been let go, under pressure from the Ministry of Health, Welfare and Family Affairs.
Market participants say executives at other government pension funds are now waiting to learn their fate. The Ministry of Finance and Economy is also planning to replace the heads of the Korean Development Bank, Industrial Bank of Korea, Korea Deposit Insurance Corporation and Korea Asset Management Corporation. The government is reportedly trying to replace top executives at Kyongnam Bank and Woori Bank, which have received public funds.
The loss of the top two execs at NPS has not impacted day-to-day operations but has heightened staff nervousness over the fate of the investment centre. This remains slated for being spun off into a separate company, which is meant to enhance its independence and professionalism. The concept is welcomed by NPS technocrats, but they worry the process could prove counterproductive if it means certain ministries are allowed too much control over the investment board. With its experienced leaders gone and legislation expected to reach the National Assembly this summer, NPS people are hoping the new appointments are people who will fight their corner.
But the institution being watched most closely is $200 billion Korea Investment Corporation, a young sovereign wealth fund that continues to suffer political sniping. Market rumour says CEO Hong Serck-Joo and CIO Guan Ong have both been told to submit a resignation, although so far both men remain in their jobs. KIC officials declined to comment.
The clean sweep also extends to regulators, where two-year rotations are the norm. For the funds industry, new relationships must be forged, because the current director of asset-management supervision at the Financial Supervisory Service, Park Won-ho, ends his two-year term this month. Park says his new role, and the name of his successor, is not yet public information.
Even the private sector is going through big changes, thanks to the management crisis now enveloping Samsung Group. Lee Kun-hee has shocked the market with his decision on April 22 to resign in the face of white-collar criminal charges, taking three key executives down with him.
This has a direct impact on the $100 billion Samsung Life Insurance, Korea's leading private-sector institutional investor, where nervous executives are jockeying to move up the ladder into the suddenly vacant senior roles. This means the people overseeing investments of the general account may well move to new jobs, says a senior Samsung Life exec.
Also of significance is the future shape of Samsung Group: with the senior Lee stepping down and his son, Jae-yong, supposed to take over at some point, the leadership is reportedly breaking up control over the various arms. Samsung Electronics has long been the family company's flagship, and the financial services were run very conservatively, in order to avoid creating any volatility for the corporate entity. Now Samsung Life execs expect to be given more leeway, which will have an immediate impact on investment strategy.