Bank of Korea Shifts Mandate to Active Global Bond Management
The central bank is expanding its bond investment universe from 10,000 to 30,000 securities across 28 countries.
The Bank of Korea will expand its overseas bond investment universe from approximately 10,000 U.S. securities to around 30,000 across 28 countries. This shift moves the mandate from a passive U.S. aggregate strategy to an active global aggregate approach. The central bank will reduce its reliance on passive stock management. This change applies to foreign assets entrusted to domestic asset management firms. The total entrusted principal stands at 3.21 billion dollars.
The reorganization plan was announced on the 16th. It replaces the previous focus on tracking developed market indices. The new framework requires active analysis of interest rates and exchange rates. The Bank of Korea aims to elevate the professional capabilities of domestic managers. The overall stock-to-bond ratio for foreign assets will remain unchanged. Adjustments are limited to the specific funds managed by domestic firms.
Entrusted assets grow over decade
The central bank has gradually expanded assets entrusted to domestic firms since 2012. The initial mandate involved 100 million dollars in Chinese stocks. Developed market stocks were added in 2019. U.S. aggregate bonds joined the portfolio in 2022. The entrusted principal reached 3.04 billion dollars in 2022. It grew to 3.21 billion dollars last year. This steady increase reflects a long-term strategy to build domestic expertise.
Private fund growth drives decision
The decision follows a sixfold increase in private overseas stock fund assets. These assets surged from 27.7 trillion won in 2020 to 163 trillion won in June this year. Overseas bond funds grew from 8 trillion won to 11.1 trillion won over the same period. The Bank of Korea noted that significant private growth reduces the need for policy support in equities. This creates a strategic gap in bond management capabilities. The central bank seeks to fill this gap through active mandates.
Global bond strategy requires analysis
Asset managers must now analyze monetary policies in 28 countries. They must evaluate economic trends and exchange rate fluctuations. This process replaces simple index tracking. The goal is to pursue excess returns based on market outlooks. The Bank of Korea may also support quant strategies in the future. These strategies use artificial intelligence to select investment targets. The primary focus remains on enhancing active management skills.
