[Edaily Marketin JI YEONG-EUI Reporter] Political controversy surrounding the National Pension Service’s decision to rebalance its domestic stock portfolio is intensifying. While there were significant concerns that large-scale stock sales by the National Pension Service could weigh on the market during a bull run, the decision to delay sales after stock prices plummeted has now sparked accusations of negligence.

The controversy has even escalated to calls for a parliamentary investigation and a special prosecutor. Market participants are concerned that excessive post-event blame-shifting could weigh on the National Pension Service’s future asset allocation decisions. Critics warn that there is a risk investment decisions could be skewed toward avoiding political accountability rather than prioritizing the long-term interests of subscribers.

Pension Fund Becomes a “Tool for Political Strife” as Stock Prices Plunge

According to the financial investment industry and political circles on the 23rd, the conflict between the ruling and opposition parties over the National Pension Service’s postponement of domestic stock rebalancing has intensified further following the parliamentary audit. Jang Dong-hyuk, leader of the People Power Party, raised the possibility of political interference in the process of expanding the National Pension Service’s domestic stock allocation on the 22nd and demanded a parliamentary investigation and a special prosecutor. He also argued that if the pension fund was illegally mobilized to secure victory in the local elections, it would constitute grounds for the president’s impeachment.

The ruling party immediately pushed back. Kwon Chil-seung, chairman of the Democratic Party of Korea’s Policy Committee, countered that it is inappropriate to evaluate the National Pension Service—a long-term institutional investor—based on short-term stock price fluctuations. Regarding the claim of a loss in the 182 trillion won range recently criticized by the opposition, he rebutted that this was an overinterpretation of a decline in the valuation of shares held in some listed companies as an investment loss for the entire National Pension Service fund.

The controversy stems from changes to the National Pension Service’s asset allocation criteria implemented earlier this year. In January, the National Pension Service temporarily suspended, until the end of June, the domestic stock rebalancing mechanism—which is triggered when deviations from the Strategic Asset Allocation (SAA) exceed the permitted range. Subsequently, at the Fund Management Committee meeting in May, the NPS significantly raised the target allocation for domestic stocks from 14.9% to 20.8% and expanded the permissible deviation range. It also adjusted trading criteria, such as reducing the maximum daily rebalancing volume.

Rebalancing is the process of selling a portion of a specific asset—whose weight has increased due to rising stock prices, for example—to restore the portfolio to its predetermined investment weight. As of late February, the National Pension Service’s domestic stock weight stood at 24.5%, exceeding not only the target weight at that time (14.9%) but also the upper limit (19.9%)—which combines the allowable ranges for strategic and tactical asset allocation—by 4.6 percentage points. Under existing investment criteria, pressure was mounting to reduce the allocation to domestic stocks. However, following a postponement of the rebalancing, the National Pension Service raised its target allocation to 20.8% in May and expanded the permitted range as well. At the time, analysts in the securities industry widely assessed that these measures had reduced the burden of large-scale selling by the National Pension Service.

The problem began when the stock market subsequently turned downward. Arguments emerged that if the NPS had reduced its domestic stock allocation in advance according to the existing asset allocation criteria, it could have mitigated the losses resulting from the recent decline in stock prices.

Repeated “Political Condemnation”

Could

Weigh on Asset Allocation Decisions

There are concerns in the market that the political back-and-forth surrounding the rebalancing decision could

weigh

on the National Pension Service’s future investment decisions. It has been pointed out that a distorted structure could become entrenched: if the weight of domestic stocks is reduced, the market shock caused by large-scale selling could become a source of controversy; conversely, if the weight is maintained and stock prices subsequently fall, the fund would face accusations of failing to minimize losses.

In particular, analysts note that if post-hoc returns are emphasized over prevailing market conditions and risk analysis when judging the appropriateness of investment decisions, this could influence the decision-making of fund managers. They explain that if managers become preoccupied with the possibility of future political criticism—rather than making judgments based on long-term expected returns and risk—the tendency to avoid responsibility during the asset allocation process could increase. Some also point out that even without direct trading instructions from politicians, repeated blame games could undermine the fund’s operational independence.

The National Pension Service is an institution that must consider not only profitability and stability but also public interest and operational independence. While it cannot ignore the impact of large-scale trading on the domestic financial market, it cannot be viewed as an institution responsible for stock market rises or falls per se. This is why some argue that a distinction must be made between decisions aimed at mitigating market shocks and investment decisions aligned with the government’s policy objectives.

An investment banking industry official noted, “There is a valid point to be made regarding whether there was sufficient analysis at the time to justify changing the asset allocation criteria,” but added, “However, to dismiss the entire investment decision made at that time as wrong based solely on book gains or losses resulting from short-term stock price fluctuations is to ignore the basic principles of long-term investing and is a dangerous attitude.”

Year-End SAA Review and Mid-Term Asset Allocation Loom… Pension Fund’s Independence Put to the Test

The National Pension Service plans to review the temporarily expanded SAA (Strategic Asset Allocation) range at the end of this year. In the first half of next year, it must also prepare a mid-term asset allocation plan for 2028–2032. This is a critical process for determining how much to allocate to domestic and international stocks, bonds, and alternative investments over the next five years.

The National Pension Service’s target allocation for domestic stocks in 2027 has already been set at 20.8%, the same as this year. By the end of this year, it must reassess the temporarily expanded SAA limits, and in the first half of next year, it must formulate the medium-term asset allocation plan for 2028–2032. It is time to re-examine the investment weights and management criteria for each asset class based on future domestic and international financial market conditions, long-term expected returns, and risk levels.

However, concerns are emerging that the burden of asset allocation discussions could deepen if the National Pension Service continues to be a target of political scrutiny and is forced to navigate not only short-term stock price movements but also the political back-and-forth between the ruling and opposition parties.

A capital markets expert emphasized, “If avoiding criticism from the political arena becomes the standard for investment management, we may miss out on investment opportunities that are actually beneficial to subscribers. It is crucial to guarantee the NPS’s independence so that it can make choices that enhance the long-term profitability of citizens’ retirement funds, rather than opting for politically safe choices.”