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Risk Management

Constant Monitoring for Systematic and Quick Response to Changing Investment Conditions Domestically and Globally.

The risk management system in the NPSIM is multi-layered, bolstered with internal and external inspection and supervision. Our risk management process is planned by the Risk Management Committee that, chaired by the CEO and participated by external experts, is responsible for controlling risk budgets by allocation of risk tolerance and development of risk management standards; and implemented by the Risk Management Center in the NPSIM. In addition, the fund managing activities are under supervision of the Compliance Officer, internal auditory group and the Board of Audit and Inspection and the National Assembly of Korea.

Risk Management Process

  • Planning
    National Pension
    Research Institute
    • To conduct an actuarial projection
    Fund Management
    Committee
    • To establish fund management plans
    • To decide major risk-related policies
  • Policy
    Action
    National Pension Service
    Investment Management(NPSIM)
    • To establish annual and monthly investment plans
    • To define risk management system
    • To identify the ways to manage each risk factor
    Risk Management Committee
    • To allocate risk tolerance by asset class
    • To develop standards for risk management
  • Monitoring
    Investing Departments
    • To invest in various assets
    Risk Management Division
    • To manage risk tolerance
    • To monitor risk factors and keep them at bay
    Compliance Officer
    • To conduct a general internal control practices
  • Risk management
    by risk factors
  • Risk management
    by asset class
  • Management of
    risk tolerance
  • Risk management
    for new investments
  • Pre-and-post review
    of risky events

Criteria for Fund Management

We set the risk tolerance levels based on the expected rate of returns and expected risks defined in the Fund Management Plan.
We construct and manage the optimized portfolios within such levels.
  • Benchmark Returns (%) and Asset Allocation for Each Asset Class are defined in our annual investment plans in detail.
  • Target Return (%) is set to assure that the long-term rate of return is close to "real economic growth rate + inflation rate ± adjustment".
  • Adjustment is applied to assure that the Target Rate is within the pre-defined risk tolerance levels. It is decided by the Fund Management Committee.
  • Risk Tolerance is set by limiting the possibility that the five-year cumulative investment return (%) is lower than the cumulative inflation rate for the same periods to less than 15%. Another considerations to be taken into include "minimum reserved fund ratio for the next five years", "annual loss probability" and "expected tail loss".