[Edaily Marketin Reporter JI YEONG-EUI ] An internal audit has revealed evidence that evaluation criteria and scores were arbitrarily altered during the National Pension Service’s (NPS) process to replace the general partner (GP) managing “Centerfield,” a prime office complex in Seoul’s Gangnam district valued at up to 4 trillion won. As it came to light that the scores of candidates whose evaluations had already been completed were retroactively modified, questions have arisen regarding the fairness of the selection process for asset managers overseeing public funds that manage citizens’ retirement savings.

Centerfield: Scores Changed After Screening Was Complete… Eyes Turn to Lead Advisor CBRE

According to a synthesis of reports from the investment banking (IB) industry and E-Daily on the 10th, the NPS Audit Office confirmed that evaluation criteria and scores were arbitrarily altered during the process of replacing Centerfield’s general partner (GP) and criticized the Real Estate Investment Division for its failure to properly manage and supervise CBRE Korea. This is because the National Pension Service discovered evidence that CBRE Korea—the lead firm responsible for evaluating candidates for the new asset manager—had revised the scores a second time, even after the evaluation of the new candidates had been completed and scores had already been calculated. Although Koramco Asset Management was ultimately selected following the revised evaluation, the attempt to replace the asset manager was ultimately scrapped amid various controversies regarding the appropriateness of the process.

Initially, the main reasons cited for the failure to replace Centerfield’s asset manager were △a conflict of interest arising from the re-employment of a former high-ranking National Pension Service official at Koramco Asset Management and △a lack of tangible benefits from the change; however, it has now come to light that there were also issues with the fairness of the evaluation process. It has been confirmed that the NPS Audit Office also pointed out the issue of changes to the Centerfield evaluation during the process of referring Mr. Ahn, the recently dismissed head of the Real Estate Investment Division, to the disciplinary committee.

Centerfield is a leading office building in the Gangnam area, with the National Pension Service and Shinsegae Property each holding approximately 49.7% of the shares and Aegis Asset Management holding 0.5%. It is a high-value asset with an appraised value alone reaching the 4 trillion won range. Investors selected CBRE as the lead advisor to replace the existing manager, Aegis Asset Management. Initially, firms such as Samsung SRA Asset Management and Pebblestone Asset Management—which had received and reviewed proposals from the lead advisor—were also mentioned as candidates, but the final competition narrowed down to KB Asset Management and Koramco Asset Management. CBRE, which oversaw the evaluation and selection process, designated Koramco as the preferred bidder last April.

However, coinciding with the timing of this management firm replacement evaluation, a situation arose with a strong potential for a conflict of interest, as a former high-ranking official of the National Pension Service took a new position at Koramco. Furthermore, given the lack of tangible benefits from the replacement, controversy arose regarding the appropriateness of the move, with questions raised as to whether the change in management firm was driven by largely personal motives. It has been reported that, despite the fact that several conditions required for changing the GP under the National Pension Service’s internal regulations were not met, the process was forced through by relying solely on a single provision stating that “the GP may be replaced.” The issue of having to pay a large sum to the existing asset manager without actually selling any assets also sparked controversy over legal and economic appropriateness, and the attempt to replace the manager was ultimately rejected by the National Pension Service’s Alternative Investments Committee. Related article ☞ [Exclusive] Amid the National Pension Service’s “Former Official Controversy”… Bar Raised for Replacing Centerfield’s Asset Manager

Was this “yet another” case of the National Pension Service abusing its power, or was it CBRE’s misconduct?

The issue lies in identifying who the “true person in charge” was—the one who belatedly changed the evaluation criteria and led the effort to adjust the scores. If CBRE, the lead advisor, arbitrarily changed the evaluation method and adjusted the scores during the selection process without consulting its client, it is necessary to examine why the National Pension Service failed to properly oversee this.

Conversely, if CBRE altered the evaluation procedure at the request of senior officials in the National Pension Service’s Real Estate Investment Division—its client—the issue becomes even more serious. This is because it could lead to suspicions that the National Pension Service had already decided on a specific asset manager and intervened in the review process to favor that entity. With its vast authority over fund allocation, the National Pension Service is a “big player among big players” that exerts considerable influence over asset managers and advisory firms. If internal officials exerted influence to alter evaluation criteria or scores even though the evaluation was entrusted to an external specialized agency, this goes beyond procedural flaws and raises questions regarding abuse of authority and the exertion of undue pressure.

There is concern that if the issues revealed in the National Pension Service’s audit are not clearly resolved and are simply recorded in internal documents as procedural failures on the part of the consulting firm, it could deal a direct blow to the credibility of the evaluation conducted by CBRE, the lead firm. This is because, even if CBRE handled the day-to-day operations , it did not have the authority to independently change the evaluation criteria. This would not only damage CBRE’s credibility but is also expected to pose a critical burden on its future advisory work for the National Pension Service.

Industry insiders point out that the circumstances surrounding the evaluation changes and the allocation of responsibility must be clearly elucidated. Questions have also poured in regarding whether the change in criteria was the result of the advisory firm’s arbitrary judgment.

A senior official at an asset management firm stated, “It is contrary to industry common sense for an advisory firm to arbitrarily change criteria without the client’s consent or consultation. We have done business with CBRE for a long time, but this has never happened before.”

Another official from an asset management firm pointed out, “Given the atmosphere in the National Pension Service’s Real Estate Investment Division, which pressured and manipulated asset managers, external evaluations by lead advisors held little significance.” He added, “Everything was decided by the ‘higher-ups’ in the Real Estate Investment Division. Everyone knows that we had to communicate with them—from the conditions for drafting bid proposals to the so-called ‘commission rates’ we were to accept.”

Additional Audit of Alternative Investments Underway… Internal Control System Must Be Improved

The National Pension Service recently confirmed serious regulatory violations—including mismanagement and verbal abuse and sexually derogatory remarks directed at employees—during an internal special audit of the Real Estate Investment Division. Following a disciplinary committee meeting on the 21st of last month, it decided to dismiss Mr. Ahn, the former head of the Real Estate Investment Division. The dismissal was officially notified to him on the 3rd of this month. However, even with the dismissal of the division head, it remains necessary to determine who was involved in changing the evaluation criteria and scores for asset managers and whether there was any improper interference.

It is understood that the National Pension Service’s audit of the Real Estate Investment Division has not yet been completed. The Audit Office reportedly changed the originally scheduled comprehensive audit of the Fund Management Headquarters to a “specific audit on alternative investment management” and is conducting a further review of the appropriateness of related investment operations and decision-making processes. It is reported that additional investigations into some staff members under the dismissed division head remain pending.

It is reported that officials in charge of the National Pension Service’s Real Estate Investment Division explained during the audit process that they did not intervene in the evaluation procedure for changing Centerfield’s asset manager, and that the decision was made arbitrarily by the lead firm, CBRE.

CBRE responded, “We are not aware of any issues regarding the Centerfield asset manager selection process.”

In this regard, an official from Koramco Asset Management stated, “At the time, we communicated through CBRE, the lead arranger, as the single point of contact, and since the selection of the manager was conducted through an open competitive bidding process, we participated in the bidding under the same conditions as our competitors.”