Among S. Korean pension funds, the Public Officials Benefit Association (POBA) is known for having modernized its approach to asset allocation and for having boosted AuM and returns in the past few years. We had the great pleasure of speaking with the engineer of such change as the fund’s CIO between 2016 and 2022, Mr. Dong Hun Jang, about the country’s pension system, the fund’s history, and the changes he pushed for during his tenure.
[GSWF] South Korean pension system was initially modeled after the Japanese social security system. What would you say makes Korean pension funds unique?
[DHJ] When I met with asset owners in Japan, I could feel that we had similar structures and strategies. However, the growth of South Korean pensions is now very significant – 12% rate p.a. for the past decade, only second to China. So, in another 10-12 years, the Korean system may outgrow that of Japan. The system is organized in three tiers: NPS which is mandatory for any employer with 5+ employees, and then corporate and private schemes.
[GSWF] You were CIO of POBA for six years. What can you tell us about your role and lessons learned during that period?
[DHJ] I have worked in Korea’s asset management industry for over 30 years – however, my experience at POBA was the richest. We had 330,000 members (1 million with families) of the civil society with low-paid jobs, who relied on my function, so it was a daunting but also rewarding task. During my tenure, I changed the asset allocation and I believe I left it at a solid situation before I moved on last year.
[GSWF] You established the alternatives program at POBA, which led to higher AuM and better returns – why did you do it?
[DHJ] Korean investment managers do not usually have much experience with non-traditional asset classes, but I had had exposure to alternatives since 2010, so when I joined POBA, it was very important to me to introduce this ingredient to the portfolio mix.
[GSWF] POBA has pursued partnerships with other pension funds such as CalSTRS, TRS and PFA. Why are these important?
[DHJ] Alignment of interests between LPs and GPs is always important but especially in the case of alternatives. Whenever I met with other global asset owners, I tried to understand what they were looking for and add value despite POBA’s smaller size and experience. I really enjoyed that kind of collaboration – we had a limited exposure allowed for commingling funds, but I expanded it at portfolio level. CalSTRS was a fascinating partner for us, especially for US real estate, in which we committed up to US$ 2 billion.
[GSWF] What are your forecasts for the pension system in South Korea in general?
[DHJ] Korean pension funds are increasing in terms of size – but they must increase the capacity and exposure to alternative assets beyond real estate (offices). They need to gain a better understanding of those asset classes so that they can increase their exposure.
[GSWF] What is Korea’s approach when it comes to ESG? Is the focus on “stewardship” rather than “impact investing”?
[DHJ] Korean asset owners are conscious of these issues – corporate governance has become quite big in the domestic markets. They are probably behind their European peers, but they are starting to get momentum and interest in climate issues, gradually.
[GSWF] Korean Sovereign Investors have struggled to retain senior talent and dealmakers – why do think that is?
[DHJ] Younger generations tend to prefer private organizations to public-linked investors because of compensation and prospects. I think corporate governance and HR development programs play an important role, so that employees can tailor their career path.
[GSWF] You are now a senior advisor to law firm Yulchon LLC among other roles. How do you balance your time these days?
[DHJ] Except for the investment aspect, my daily job is pretty much the same, meeting clients, GPs, and LPs, reading the market and translating it into actionable insights. After 35 years in the asset management industry, my job is now to share knowledge and advice.
