According to Korea’s National Pension Service Investment Management, KRW 772 trillion worth national pension funds have been under management as of October of last year, which accounts for a whopping 40% of the nation’s gross domestic production or GDP. The average annual return of these funds has amounted to 5.46% on a cumulative basis between 1988 and 2020, yielding a healthy rate of return. These funds, however, are facing a depletion risk by 2057 due to the disproportionate increase of the aging population to the declining population of the younger generation. If the pension funds manage to raise their rate of return by 1%, it could delay their depletion by approximately 5 years.

The Financial Investment & Risk Management (FIRM) Laboratory headed by professor Bong-Gyu Jang at the Department of Industrial & Management Engineering, POSTECH, takes mathematical and engineering approaches to study asset management for pension funds and other types of funds. One of its primary goals is to explore investment and risk management methodologies for national pension funds including Korea’s National Pension Service to help safeguard depletion of these funds, even by just a bit.

The scope of research covers theories associated with investment and financial risk management, ranging from asset allocation and life-cycle asset management to bonds and derivative financial instruments, as well as asset/debt management for pension funds and insurance companies. Research findings are readily applicable to serve the needs of financial consumers. The Lab also collaborates with such large Korean-based financial institutions as Shinhan, Hana and Mirae Asset to verify research outcomes, and is implementing them to deliver useful services.

One prime example of such services is the ‘robo advisor’ which helps investors with investment decisions and asset allocation. The term ‘robo advisor’ was coined through the process of combining robots with professional investment advisors. Robo advisors assist with formulating just the right asset allocation strategy for individual investors. The key here lies in the deployment of smart machines, rather than people, as asset managers. The research team established an industry-academia research center within POSTECH in conjunction with Hana Financial Group and is currently engaged in relevant research undertakings.

Researchers at the Lab are also committed to nurturing qualified talent with a focus on striking a balance between financial theory – mainly taught in business school – and financial technology developed in engineering school. In fact, one of the Lab’s PhD graduates was appointed professor at the University of Nottingham in the UK while others landed positions with the Korea Development Bank, Hana Financial Group and other domestic financial institutions.

The Financial Investment & Risk Management Laboratory plans to focus more on financial technology research. Often referred to as fin-tech, this area of research aims to apply information technology to the world of finance to create novel financial services and business opportunities that were before nonexistent. Aside from traditional research endeavors with asset management, the Lab plans to harness financial and associated data analytics and machine learning to develop outstanding financial services.