The Bank of Korea will cut the amount of developed-market equity investment it outsources to domestic asset managers and expand bond mandates instead, seeking both higher returns and stronger investment capabilities at the firms it hires.
The central bank announced the plan, titled "Direction for Restructuring Outsourced Investment Portfolios for Domestic Asset Managers," on the 16th.
The Bank of Korea has outsourced part of its foreign exchange reserves to domestic asset managers since 2012. It began with Chinese equities, then added developed-market equities in 2019 and U.S. bonds in 2022. Outsourced assets at domestic managers jumped to $3.21 billion in 2025 from $100 million in 2012, according to the bank. The number of firms managing the money rose to five in 2022 from two in 2012.
With that funding having helped domestic asset managers build out their overseas investment infrastructure, the central bank said it would move away from a paradigm of quantitative support and restructure the outsourced portfolio.
The first step is to expand bond fund mandates in place of developed-market equity funds. Most of the overseas equity funds currently outsourced are passive products tracking benchmarks such as the MSCI World Index, which the bank judged leaves managers limited room to develop more advanced investment skills.
"As the need for policy support has shrunk with the sharp increase in private-sector overseas equity investment, we plan to reduce mandates for developed-market equity funds and expand support for bond funds," the Bank of Korea said.
Under the revamp, about $1 billion of developed-market equity money managed by three domestic firms will move into bonds. The exact amount will be set after consultations with those managers.
The change adjusts how mandates are split between domestic and foreign managers within the central bank's overall allocation of foreign currency assets, leaving its total equity and bond weightings unchanged.
Outsourced bond investment will also broaden from a U.S. focus to multiple countries. When the central bank first outsourced overseas bond funds in 2022, it limited investment to the United States and adopted a "U.S. aggregate bond strategy" that excluded mortgage-backed securities, taking into account the capabilities of domestic managers at the time. It now plans to switch to a "Global Aggregate" strategy with a far wider investment universe, to push domestic managers to raise their game. Outsourced investment currently covers one country and 10,000 securities; the target is 28 countries and 30,000 securities.
"A global aggregate bond strategy requires managing tens of thousands of eligible securities and complex macroeconomic variables all at once," a Bank of Korea official said. "We expect this to improve domestic brokerages' ability to intermediate overseas bond trading as well."
The central bank said it would actively encourage domestic managers to build genuine active management capabilities, compete on equal terms with global asset managers and grow into global players over the medium to long term.
