BOK Shifts Foreign Currency Mandated Investment to Advanced Bond Strategies for First Time in 14 Years
The Bank of Korea is overhauling its strategy for foreign currency assets entrusted to domestic asset managers, 14 years after the program began. According to the 'Restructuring of Foreign Currency Asset Mandate Portfolios for Domestic Managers' announced by the BOK on the 16th, the central bank will shift its focus from expanding the size of the mandates to building managers' capacity to handle even difficult bond investments.
The BOK assessed that its original goal of 'building a quantitative foundation' has largely been achieved as domestic investors' overseas equity investments have grown rapidly. The net assets of domestic overseas equity funds surged roughly sixfold, from 27.7 trillion won in 2020 to 163 trillion won this June, while overseas equity exchange-traded funds (ETFs, funds that bundle multiple stocks and trade like shares) jumped from 1.6 trillion won to 126.3 trillion won over the same period.
The scale of the BOK's mandates with domestic managers also grew more than 32-fold, from $100 million in 2012 to $3.21 billion as of July this year. Current mandates stand at $1.92 billion in advanced-economy stocks, $700 million in U.S. aggregate bonds, and $590 million in Chinese stocks.
The key change in the restructuring is replacing the existing U.S. aggregate bond strategy with a Global Aggregate strategy. While U.S. aggregate bonds cover roughly 10,000 securities in a single country, global aggregate bonds span about 28 countries and 30,000 securities. It is an active management strategy that generates excess returns by also analyzing major countries' monetary policy, business cycles, and exchange rate volatility.
The overall split between stocks and bonds within the foreign currency assets will not change under the restructuring. The share managed by overseas managers will rise by the amount of equity mandates reduced for domestic managers, while domestic managers' share of bond mandates will expand. Specific amounts have yet to be finalized. The BOK is reviewing a plan to adjust a combined total of around $1 billion from advanced-economy equity mandates held by three asset managers.
Domestic managers' share of management stood at 3.5% in 2022, 3.7% in 2023, and 3.9% in 2024 and last year, stagnating for four years at less than half of the mid- to long-term target of 10%. The BOK maintains that the restructuring does not mean abandoning the 10% target or scaling back support.
