[Edaily Marketin JI YEONG-EUI Reporter] An internal audit by the National Pension Service (NPS) has confirmed that former Director A of the Real Estate Investment Division (Senior Portfolio Manager) in the Fund Management Headquarters committed “serious regulatory violations, including abuse of authority.” Amid ongoing allegations that he had used his authority to manage massive amounts of the public’s retirement funds to interfere in the personnel matters of external asset management firms and exert undue influence over internal staff and industry officials, the audit appears to have confirmed some of these misconduct allegations. Based on the audit findings, disciplinary proceedings against former Director A are expected to begin following the National Assembly audit. The National Pension Service had already removed former Director A from his operational duties starting in July, following approval by Chairman Kim Seong-ju.

According to documents submitted by the National Pension Service to the office of Rep. Lee In-young of the Democratic Party of Korea—a member of the National Assembly’s Health and Welfare Committee—on the 7th, the Fund’s audit into former Director A’s misconduct concluded that there had been “serious violations of regulations, including abuse of authority.”

Based on E-Daily’s investigation, it was found that during the inquiry process, numerous testimonies emerged stating that former Director A repeatedly used abusive language, made insulting remarks, and made sexually derogatory comments toward employees. It was also reported that there were statements alleging he made threatening remarks to affected employees.

Audit Confirms ‘Serious Regulatory Violations’… How Severe Will the Disciplinary Action Be?

With the internal audit officially confirming serious regulatory violations, the possibility of severe disciplinary action against former Director A can no longer be ruled out. However, the final

level of

disciplinary action will be determined following the Audit Office’s recommendation and deliberation by the Disciplinary Committee. The National Pension Service has had former Director A on administrative leave since last July.

In the past, cases of “serious violations of internal regulations” at the National Pension Service have led to dismissals. In 2018, following a special audit regarding the merger of Samsung C&T and Cheil Industries, the National Pension Service dismissed the then-head of the Equity Investment Division at the Fund Management Headquarters, determining that he had significantly violated his duties of diligence, maintaining dignity, and exercising due care.

The Real Estate Investment Division, formerly led by former Director A, has long been mired in allegations of abuse of power and interference in personnel matters, including pressuring external asset managers to replace or dismiss employees and demanding the hiring of specific individuals. Controversies have also repeatedly surfaced regarding the investment decision-making process. During the process of replacing the general partner (GP) for Centerfield in Yeoksam-dong, Seoul—from Aegis Asset Management to Koramco Asset Management—a conflict of interest controversy arose due to the re-employment of a former high-ranking National Pension Service official at Koramco. Amid industry skepticism, the GP replacement plan, which had been pushed forward, was ultimately halted by the Alternative Investment Committee and fell through.

The decision to invest 252 billion won—equivalent to 92.6% of the total equity—in the 2024 “The Exchange Seoul” development project in Jung-gu, Seoul, also sparked controversy. The investment was ultimately approved despite strong internal opposition regarding development risks and profitability; subsequently, allegations of personnel interference arose when an individual who had previously worked with senior officials from the Real Estate Investment Division at the same company was hired by the project management firm.

In the case of “Tower 535” in Causeway Bay, Hong Kong, which had defaulted, the fund made the rare decision to inject an additional 900 billion won on top of the existing investment. Despite concerns over the slump in the Hong Kong office market and the potential for mounting losses, the additional investment was made, causing the total investment amount tied up by the National Pension Service to swell to approximately 1.2 trillion won. Criticism continues to mount regarding the appropriateness of the investment decision, as the project is reportedly still generating low returns due to low rental rates, even after occupancy rates have recovered significantly. It has been reported that a proposal to inject another large sum of additional funds into the troubled Hong Kong asset management firm is currently under review within the pension fund.

An official familiar with the National Pension Service’s situation criticized the situation, stating, “The NPS Real Estate Investment Division, led by former Director A, made reckless investments in the Hong Kong-based asset management firm that was at the center of the distressed asset controversy. All these allegations must be fully and transparently clarified.” The official added, “Even now, a plan is being pushed forward within the Real Estate Investment Division—led by some of the staff hired by former Director A—to make additional investments in other distressed assets held by that Hong Kong-based firm.”

“This Isn’t Just a Matter of Individual Misconduct”… Fund Management’s Internal Controls Under Scrutiny

Critics in the investment industry and political circles argue that this matter

should

not

be dismissed as

merely

the

personal

misconduct

of former Director A. They argue that if the National Pension Service’s Fund Management Headquarters failed to catch these issues early on despite years of internal and external concerns, then the organization’s culture and its entire internal control system—including auditing and compliance—must be thoroughly reviewed. In particular, there have been repeated controversies over the fact that investment authority ranging from hundreds of billions to trillions of won was effectively under the influence of a specific individual. Consequently, there are calls to strengthen checks and balances to prevent specific portfolio managers or executives from exerting excessive influence over the investment direction of citizens’ retirement funds and the management of outsourced asset managers.

Lee In-young, a lawmaker from the Democratic Party of Korea, emphasized, “Since abuse of power and serious regulatory violations have been confirmed at an institution managing the public’s retirement funds, strict accountability must be enforced,” adding, “We must not stop at disciplining individuals but must fundamentally overhaul the checks and balances on investment and personnel authority, as well as the internal control system.”