Financial firms compete to take charge of Labor Ministry’s W28tr funds

South Korea’s financial firms are set to compete this week to be picked as outsourced chief investment offices in charge of the government’s unemployment and industrial accident insurance funds worth a total of 28 trillion won ($24.6 billion), sources said Wednesday.

The Ministry of Employment and Labor will choose one brokerage and one asset management firm from a pool of bidders, to respectively manage a state-owned 10 trillion won unemployment insurance fund and an 18 trillion won industrial accident insurance fund. 

The companies are required to make presentations on how they will manage the funds before a committee of experts and civilians on Wednesday and Thursday, following which the Labor Ministry will decide on the OCIOs.

The announcements will be made mere hours after the presentations, a spokesperson at Samsung Asset Management told The Korea Herald. Samsung has been the outsourcer for the ministry’s industrial accident fund for the past four years, but has been struggling to maintain its position.

Alongside Samsung, Korea Investment & Securities will also fight to renew its contract to manage the unemployment fund.

The contracts with the current outsourcers will be terminated in July.

From local brokerage houses, NH Investment & Securities, KB Securities and Shinhan Investment are hoping to take the reins on the unemployment fund from Korea Investment & Securities.

For the industrial accident fund, Mirae Asset Global Investments, KB Asset Management and Hanwha Asset Management have entered the bid against Samsung.

Local financial firms have been beefing up their OCIO portfolios in recent months, since ministries and companies are increasingly bringing in outsiders to manage their investments.

Korea Investment, NH Investment and KB have all increased their OCIO workforce in line with the bidding.

“We are bolstering our capabilities, as the industry is anticipating the local OCIO market will boom in a few years,” an official at NH Investment said.

The firms that have entered this week’s bidding say the OCIO market is likely to include corporate retirement pension funds soon, and that this will act as a game changer.

The corporate retirement pension funds managed by Korea’s financial institutions have grown in value in recent years, topping 172.1 trillion won as of September last year as compared with 168.4 trillion won in 2017, according to recent data from the Financial Supervisory Service.

Managing the pension fund as OCIOs will give the financial firms a steady source of profit. Many envision a system similar to the one in place for Australia’s superannuation corporate pension fund, which mandates that an employer put aside a set portion of workers’ salaries and deposit it in pension funds managed by a board trusted by the workers.

“This time it’s about managing unemployment funds, but soon we expect more corporations to embrace the concept of OCIOs and eventually it will be about managing retirement pension plans,” an official at one of the bidding companies said.

By Jung Min-kyung (mkjung@heraldcorp.com)