South Korea’s $1 Trillion Pension Fund Removes Forex Hedging Cap to Stabilize Won

South Korea's National Pension Service (NPS), managing assets of approximately $1 trillion, is overhauling its foreign-exchange hedging framework to better protect the national currency. The move comes as the fund seeks to implement more agile strategies to combat currency depreciation. The Ministry of Health and Welfare, which oversees the NPS, announced that the fund will eliminate a long-standing 15% cap on forex hedging. This strategic shift allows the NPS to adjust its hedging levels dynamically based on market conditions rather than adhering to a rigid ceiling. Under the new guidelines, the previous 15% limit will transition into a baseline ratio. This provides the fund with the mandate to increase or decrease hedging activities as needed to navigate periods of heightened market volatility and macroeconomic instability. By expanding its ability to hedge, the NPS aims to alleviate pressure on the won. As one of the largest institutional investors globally, the NPS's shift in currency management is expected to influence KRW liquidity and may serve as a stabilizing force in the broader forex markets.