The surplus managed by government funds has increased more than 3.5 times in 14 years, prompting calls for enhanced expertise in fund management and risk management systems. With fund expenditures surpassing one-third of total government spending, there is a need to establish management systems that reflect the characteristics of each fund.
According to a report by the Korea Institute of Public Finance titled 'Fund Asset Management System and Challenges,' the surplus managed by funds grew from 347.3 trillion won in 2010 to 1,222 trillion won in 2024, marking an increase of over 3.5 times in 14 years. The proposed budget for 2026 indicates that fund expenditures will reach 246.5 trillion won, accounting for 33.9% of total government spending, thus forming a dual pillar of national finance alongside the budget.
Funds are managed according to four key principles: stability, liquidity, profitability, and public interest. Stability refers to managing the risk of principal loss, while liquidity ensures that assets can be converted to cash when needed for pension and insurance payments or project expenditures. Profitability focuses on preserving and enhancing the real value of the fund without compromising stability and liquidity. Public interest considers the role of public funds in supporting innovative companies and ESG investments.
The management conditions vary significantly depending on the size and nature of the funds. As of 2024, 68 funds managed a surplus of 1,222 trillion won, with only six social insurance funds accounting for 92.7% of the total assets at 1,133.1 trillion won. In contrast, 50 business funds, which make up about 74% of all funds, managed only 37.4 trillion won.
The report highlights that due to the differing sizes and financial structures of the funds, asset management should reflect the individual fund's debt and expenditure structures and management conditions. Asset management involves a cyclical structure that connects the establishment of investment policy statements (IPS), strategic and tactical asset allocation, portfolio construction, risk management and monitoring, and performance evaluation and feedback.
Despite the strengthening of institutional foundations, significant disparities in actual management capabilities among funds have been identified. While the criteria for establishing asset management committees have been expanded and the requirements for external expert committee members have been strengthened, many funds still rely on stakeholder-driven decision-making rather than asset management expertise. Strategic asset allocation and advanced risk management tailored to the asset-liability structure have not yet been fully established.
Small and medium-sized funds face recurring challenges in securing professional personnel and dedicated management organizations. The report notes that in some cases, officials from the relevant ministries also manage surplus funds, indicating structural limitations in professional asset management. As a solution, the report suggests utilizing external professional institutions such as OCIO and expanding joint management through pension fund investment pools.
The government has also restructured the existing investment pool management committee this year to establish a fund asset management policy committee. This committee will deliberate and decide on the basic direction of fund asset management and will play a role in coordinating fund asset management policies at the government level. The report recommends establishing common standards while ensuring autonomy and flexible management that considers the characteristics of each fund.
Hong Byeong-jin, a deputy researcher at the Korea Institute of Public Finance, stated, "The performance of fund asset management is the result of the organic combination of individual fund returns, asset allocation, risk management, performance evaluation, and governance. It is necessary to continuously improve the system to enhance the professionalism and efficiency of asset management while considering the characteristics of each fund type."
* This article has been translated by AI.
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