Korea’s $1 Trillion Pension Fund Eyes FX Bond as Won Swings

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(Bloomberg) — South Korea’s National Pension Service is weighing options including issuance of foreign-currency bonds to diversify its financing in the face of rising exchange-rate volatility.

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NPS, which managed 1,437.9 trillion won ($1 trillion) as of the end of November, is consulting external organizations to study the feasibility of such issuance, Chief Executive Officer Kim Sung-joo said at a briefing on Thursday, adding that amendments to the National Pension Act would be required before any foreign-currency bonds could be sold.

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“As a long-term investor, the National Pension Service is not immune to exchange-rate fluctuations,” Kim said at his first press conference since taking the helm of the fund in December. A weaker won raises the cost of overseas investments, making foreign-exchange risk a more pressing challenge, he added.

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The approach would mirror strategies used by global peers such as the Canada Pension Plan Investment Board and reflects growing concern within one of the world’s largest public pension funds about the impact of currency swings on its long-term investment strategy.

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The NPS’s activities are closely watched by investors, as its investment decisions have the potential to move the won, which has come under pressure amid heavy purchases of US assets by Korea’s retail investors.

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Bloomberg News reported last month that the NPS had started selling dollars to support the won. The fund also decided to trim its exposure to overseas stocks this year to an estimated $20 billion less than it originally planned, recalibrating its portfolio in response to the Kospi’s blistering rally and the won’s decline.

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The fund has cited difficulties in acquiring foreign currency and conditions in the local foreign-exchange market as reasons for its portfolio change.

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In recent years, the fund has broadened its currency-management toolkit, extending foreign-exchange swap arrangements with the Bank of Korea and adopting a more flexible approach to strategic hedging. It has also participated in discussions with the finance and health ministries and the central bank on a new framework aimed at balancing foreign-exchange market stability with the fund’s long-term profitability.

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