South Korea’s National Pension Service (NPS), the world’s third-largest public pension fund, is prepared to collaborate with foreign exchange authorities to help stabilize the market when necessary.
NPS Chairman Kim Tae-hyun told Reuters that re-establishing a currency swap arrangement with South Korea’s central bank could be a part of this collaboration.
The previous FX swap arrangement, which expired at the end of last year, allowed the NPS to utilize the central bank’s foreign reserves for overseas investments during periods of high market volatility.
With nearly $700 billion under management, the NPS often needs to purchase dollars for foreign investments, which can sometimes cause market tension during sharp declines in the won.
Kim stated that based on last year’s experience, the NPS has developed measures to reduce dollar demand and stabilize volatility in the foreign exchange market.
The pension fund will coordinate with foreign exchange authorities to implement these measures if there is excessive volatility, following predetermined plans when the dollar/won exchange rate reaches certain thresholds.
“We have our own target rate for foreign exchange that we can endure,” Kim mentioned, emphasizing the importance of a predictable and stable exchange rate for the fund’s operations.
Kim highlighted that re-launching the FX swap arrangement with the Bank of Korea would be “definitely necessary to stabilize the market,” though he did not provide further details.
The South Korean won suffered its worst monthly loss in over 11 years in February, weakening nearly 7% against the dollar, raising concerns about the growing demand for dollars outstripping supply.
So far this year, the NPS has reported improved investment returns of around 5%, recovering from a record loss of 8.22% in 2022.
The fund plans to continue expanding investments in overseas assets and other alternatives to achieve better returns.
Kim aims to simplify processes for alternative investments and develop a new strategy for more flexible management while enhancing partnerships with offshore outsourcing firms.
Despite criticism about its headquarters relocation to Jeonju, 200 km south of Seoul, causing hiring challenges, Kim hopes to attract more investment firms and offshore-directed companies to establish liaison offices there, transforming Jeonju into an “information hub.”
With projections indicating the fund could be depleted by 2055, Kim stressed that his main priority is to support the government’s plan to reform the national pension system.
