The Korean National Pension Corp., with over KRW60 trillion (USD46 billion) in assets, will soon start using derivatives, beginning with currency and interest-rate swaps. Chang Kil Hoon, head of the investment strategy group in Seoul, said the Korean government last year passed a law that will allow the public pension scheme to begin using derivative products in July. It plans to use swaps to hedge interest rate and currency exposure on its portfolio of non-won denominated bonds issued by Korean corporates.
Seung Chul Han, fixed-income fund manager, said the pension scheme is talking to potential counterparties, including Deutsche Bank, ING Barings, J.P. Morgan Chase and UBS Warburg. Seung added that the firm would base its decision on such factors as pricing, credit rating and the financial stability of the counterparty.
The pension scheme could make a big splash in the Korean swap market, eventually trading in significant sums, saidHyung Jun Jin, head of trading and risk management at UBS in Seoul.
"There's good potential. We've been trying to develop a relationship with them," said an official at J.P. Morgan in Seoul. Officials at ING Barings and Deutsche Bank also expressed enthusiasm about the scheme's swap plans.
