Government Loses KRW 153 Billion, but NPS Gains Freedom Over KRW 1,800 Trillion

Government Loses Elliott ISDS Case, but Ruling Shields NPS
from Claims Over Voting Rights and Other Investment Activities
"Political Independence Still Unresolved Amid Rebalancing Controversy"

The government ultimately lost its international investment dispute (ISDS) with Elliott and was ordered to pay approximately 153 billion won. Paradoxically, however, the National Pension Service (NPS), which manages 1,800 trillion won in retirement savings for the public, has seen its burden in carrying out investment activities ease. By ruling that the NPS is “not a state agency,” a UK court established a legal principle that investment activities such as exercising voting rights are unlikely to fall under ISDS. This has led to speculation that the NPS will have more leeway to invest domestically as it faces calls to strengthen its fiduciary responsibilities and stewardship.

On October 28, the Ministry of Justice said it had accepted the adverse ruling in the arbitration on remand, citing “a comprehensive review of various circumstances, including the additional costs that would be incurred.” The ministry pointed to the UK court’s decision not to regard the NPS as a state agency as an achievement in the dispute. It said the ruling established the legal principle that the NPS’s investment activities, including the exercise of voting rights, cannot be subject to ISDS, giving the government grounds to defend against similar claims in the future. In a press release issued on November 1, immediately after the ruling, the government also said that the same legal principle had been established through the UK court proceedings to set aside the arbitration award.

After winning a ruling in February in its action to set aside the ISDS arbitration award, the government also explained that “the NPS manages pension assets worth up to 1,800 trillion won and holds shares in hundreds or even thousands of companies, so there was a possibility that its investment activities could be deemed government measures and potentially become subject to ISDS.” The government said the NPS might have had to invest with overseas investors in mind, or faced reduced investment activity and deteriorating returns as a result.

The NPS’s fiduciary activities continue to expand. The Stewardship Code was revised for the first time in 10 years, broadening the assets it covers to include bonds, real estate and unlisted stocks; the revised code will take effect in 2027. The NPS has also introduced a system to assess the quality of its external asset managers’ voting and corporate engagement activities, and to factor those assessments into the allocation and withdrawal of funds. Institutional changes aimed at resolving the Korea discount are also gathering pace: amendments to the Commercial Act would codify directors’ duty of loyalty, while cumulative voting and mandatory cancellation of treasury shares are being pursued. An investment banking (IB) industry official said, “Reducing the risk of lawsuits over proposals opposed by foreign activist funds could bolster the NPS’s efforts to help resolve the Korea discount.”

Less Exposure to Lawsuits, but Political Independence Still in Question

While the ruling recognized that the NPS is not a state agency, some observers say its political independence remains an unresolved issue. Although the UK court did not consider the NPS a state agency, it found that the president, the Blue House and the health and welfare minister had ensured that the NPS received instructions to support the merger. The court’s reasoning was that this was intended to prevent the investment committee from making an independent decision. The arbitration tribunal on remand also found a causal link, reasoning that if the merger would have passed even without government intervention, there would have been no reason for senior officials to intervene at the risk of criminal liability. In other words, legal status and independence in actual decision-making are separate matters.

In practice, debate over the NPS’s independence in managing its funds is ongoing. In January, the NPS postponed the rebalancing of its domestic stock portfolio until the end of June, and in May it raised the target allocation for domestic stocks from 14.9% to 20.8%. Questions about the fund’s independence arose when the postponement was announced, and criticism over who was responsible intensified after the KOSPI surged past 9,000 in June before plunging. At a parliamentary audit on October 14, opposition lawmakers alleged that the NPS had been mobilized to support the government’s efforts to boost the stock market and demanded the release of meeting minutes. NPS Chairman Kim Seong-joo denied allegations of political pressure, saying, “Both decisions were unanimous.” The ruling party countered that the decisions were made to prevent market disruption from large-scale selling, and the dispute continues.

Observers say the ruling clarified only the NPS’s legal status, while preventing the government and political circles from influencing the fund’s actual management remains a separate challenge. An industry official said, “There is some merit to the government’s assessment that it has secured a legal basis to guard against external litigation risks.” The official added, “Controversies over government and political interference in fund management recur whenever administrations change, and without measures to limit channels for political intervention, expanding the NPS’s investment leeway may have little practical effect.”

This content was produced with the assistance of AI translation services.