The excess cash of funds refers to the assets that are retained by funds and not used for their own projects at a specific point of time. In 2014, the yearly average total balance of excess cash under management as of 2014 for 63 funds of the government (except for the Foreign Exchange Equalization Fund) was KRW 524 trillion.
According to the evaluation of appropriateness of the amount of excess cash of 44 project-based funds, seven funds including the Asbestos Health Damage Relief Fund need to seek ways to make use of excessive surplus cash; and six funds including the Science and Technology Promotion Fund have scanty extra cash and thus need to make efforts to raise more funds in such ways as improvement of the income and expenditure structure.
The evaluation of asset management plans of funds shows that many funds uniformly set low target rates of return, thereby failing to take advantage of opportunities to improve their rates of return. Each fund, therefore, needs to establish an attainable and reasonable target rate of return, and the evaluation of fund management should be more rigorous.
The evaluation of the management of funds' excess cash indicates that mid- and long-term asset management performance was below the market average over the last five years. Social insurance funds showed low performance in terms of both asset allocation adjustment and management of their financial instruments. In 2014, at least nine funds including the National Health Promotion Fund managed excess funds of KRW 123.5 billion in the government fiscal accounts at the interest rate of 0 percent, incurring opportunity cost. The analysis also showed that the asset management performance by the pension fund investment pool and the individual fiduciary management of each fund were deemed no better than direct management.
The National Pension Fund needs to promote discussion on system reorganization by clearly establishing long-term financial objectives and submitting specific long-term financial stabilization strategies that are devised based on the objectives. The recent return on investment of the National Pension Fund is lower than that of major foreign pension funds, likely because of the conservative target yield and asset allocation. Therefore, the Fund also needs to discuss the future asset management strategy while establishing its long-term financial stabilization strategy.
Shim Jiheon
According to the evaluation of appropriateness of the amount of excess cash of 44 project-based funds, seven funds including the Asbestos Health Damage Relief Fund need to seek ways to make use of excessive surplus cash; and six funds including the Science and Technology Promotion Fund have scanty extra cash and thus need to make efforts to raise more funds in such ways as improvement of the income and expenditure structure.
The evaluation of asset management plans of funds shows that many funds uniformly set low target rates of return, thereby failing to take advantage of opportunities to improve their rates of return. Each fund, therefore, needs to establish an attainable and reasonable target rate of return, and the evaluation of fund management should be more rigorous.
The evaluation of the management of funds' excess cash indicates that mid- and long-term asset management performance was below the market average over the last five years. Social insurance funds showed low performance in terms of both asset allocation adjustment and management of their financial instruments. In 2014, at least nine funds including the National Health Promotion Fund managed excess funds of KRW 123.5 billion in the government fiscal accounts at the interest rate of 0 percent, incurring opportunity cost. The analysis also showed that the asset management performance by the pension fund investment pool and the individual fiduciary management of each fund were deemed no better than direct management.
The National Pension Fund needs to promote discussion on system reorganization by clearly establishing long-term financial objectives and submitting specific long-term financial stabilization strategies that are devised based on the objectives. The recent return on investment of the National Pension Fund is lower than that of major foreign pension funds, likely because of the conservative target yield and asset allocation. Therefore, the Fund also needs to discuss the future asset management strategy while establishing its long-term financial stabilization strategy.
Shim Jiheon