The objective of the Government Employees Pension Fund is to carry out the role as a liability reserve for paying benefits to the government employees by growing the fund and maintaining adequate liquidity. As prescribed in Article 4 of the Fund Management Regulation, the fund is managed according to by four investment principles:
Every year, the GEP Service creates a five-year asset allocation strategy and fund operation plan, based on target return rate and risk limits. The asset allocation strategy thereby sets the allowable scope of investment to adequately reflect changes in financial situations.
Based on mid/long-term market projections, the Asset Allocation Strategy determines the portfolio of different assets. The process is split into two stages. In the first stage, the Asset Management Committee establishes the overall asset allocation strategy. This includes financial assets, loan assets, housing assets, facility assets and other assets. In the second stage, the financial asset allocation strategy is determined for bonds, stocks, alternative investment, etc.
The fund was established to pay for annuities such retirement pensions, survivors’ pensions and disability pensions. The fund should, therefore, maintain and increase the value of the fund to secure long-term financial stability. The target return rate of mid/long-term assets is set at “real economic growth rate (GDP) + consumer price index rate (CPI).”
The allowable risk limit of the financial asset is set at the maximum of endurable risk against the decrease of the rate of return.
The tactical asset allocation is a process to adjust assets within the permissible scope of strategic asset allocation to address changes in the market conditions. In the case of financial assets, the Financial Asset Investment Committee conducts the tactical asset allocation within the scope of the ratio of strategic asset allocation set by the Asset Management Committee.
The ultimate objective of risk management is to secure the long-term financial stability of the fund and the soundness of assets by minimizing risks and to preventing fund shortages by identifying, measuring and controlling various risks (market risk, credit risk, liquidity risk, legal and regulatory risk, operational risk, etc.)
Performance evaluation aims to enhance efficiency and accountability in asset management. Evaluation results are reflected in the asset management and compensation system (i.e. feedback). To ensure transparency and objectivity in employees’ performance appraisals, the evaluation is conducted in conjunction with an external organization.
All results related to fund management must be disclosed at an accrual accounting basis, as per the recommendations of the Global Performance Evaluation Standard (GIPS). Necessary items for the public disclosure include the performance evaluation of more than five years’ period, the use of time weighted return rate, benchmarks, the use of leverage and derivative, the inclusion of fees, etc. Also, it is recommended to acquire verification by an independent third party to assess internal company matters (i.e. personnel movement, risk index, etc.) The following items are disclosed on the homepage of the GEP Service (www.geps.or.kr).
In accordance with Article 64 of the National Finance Act, the voting right of shares should be earnestly exercised in good faith for the benefit of the fund, and the content of its exercise should be disclosed too.
In accordance with Articles, 4 and 16 of the Fund Management Guideline, the investment management of financial assets aims to achieve performance above standard return rate, maintaining the following management principles: financial stability, profitability, liquidity and public welfare.
|Total||Domestic bond||Global bond||Domestic stock||Global stock||Alternative investment|
|Ratio criteria||allowable scope||-||±7.0||±3.5||±5.0||±3.5||±4.0|
|Total||Bond||Stock||Alternative investment||Short-term asset|
|Average outstanding Amount||74,958||28,794||21,995||11,251||12,918|
|Target rate of return||3.6||1.8||6.3||5.0||1.4|