KIC eyes tech, healthcare, telecoms via PE and VC

Korea Investment Corporation (KIC) aims to increase alternative investment to 25% of its total investment by 2025 as well as rank among the world's 10 largest sovereign wealth funds in two years, Chief Executive Jin Seoungho said in an interview with The Korea Economic Daily on Jan. 4.

The world’s 14th-biggest sovereign wealth fund manages foreign currency entrusted by the South Korean government and the Bank of Korea (BOK). The two parties have entrusted a total of $115.1 billion to date. KIC has earned $86 billion in returns since its inception in 2005, including $71.7 billion from traditional assets and $14.2 billion from alternative assets. As of the end of last August, its assets under management reached $210 billion.

Investing its entire fund in overseas assets, KIC allocates 16.4% of its AUM to alternative assets. It invests 6% and 7% of its AUM in real estate & infrastructure and private equity, respectively. Public stocks and bonds take 42% and 38% of the assets, respectively. 

Jin, an ex-senior finance ministry official, will lead KIC until the end of his term in May of 2024. The following is an edited transcript of the interview, which is his first media interview since his inauguration in May of 2021.

▲What are the notable performances of KIC under your leadership to date?

“First of all, KIC’s AUM surpassed $200 billion with an 8.1% return as of end-August 2021. In March, we founded our San Francisco office to accelerate tech venture investments and strengthen global networks. We also created an Investment Strategy & Innovation Division directly under the CIO and deployed our brightest professionals to the division, to more effectively plan alternative investment, risk management and manage overseas office operations.”

“Last November, we agreed to invest a combined $300 million in overseas hedge funds with two Korean federations, the National Agricultural Cooperative Federation (NongHyup) and the National Federation of Fisheries Cooperatives (Suhyup). All of these are significant milestones for KIC, and we will take the leap into becoming one of the 10 largest sovereign wealth funds before my term of office ends.”

▲What is the main strategy to rank among the world’s top 10 sovereign wealth funds?

“KIC will increase its alternative investment proportion from the current 16.4% to 25% by 2025. This was originally due in 2027, but we have put the plan forward two years. Last year, we allocated $11 billion for alternative investment for 2022. We will probably increase the allocation this year.”

“The annualized return on alternative investment is around 8.6%. The return on alternative assets in 2021 was $11 billion, outperforming our original target of $9.2 billion. We plan to expand the $11 billion target of return on alternative investment this year, as well as increase our current 10% of direct investment in alternative assets."

* KIC is the 14th-largest sovereign wealth fund by AUM. Government Pension Fund of Norway (GPFG) topped the world’s biggest sovereign wealth fund with $1.3 trillion as of the end-December of 2021. China Investment Corporation (CIC) is the second-largest with $1.2 trillion, followed by Kuwait Investment Authority (KIA) with $692.9 billion. Abu Dhabi’s sovereign wealth fund MIC stands just before KIC, with $243 billion in AUM.

▲Why the increase in alternative investment, and which sectors will KIC focus on?

“Because it will be a tough year, particularly for bonds. Amid continuing high inflation and the Federal Reserve’s tapering, the expected rate of return on bonds will be even lower in 2022. The global institutional investors in our networks have already planned to increase alternative investment. So, we will decrease the bond proportion and increase alternative assets instead.”

“We will increase private equity and venture investment in the tech sector such as artificial intelligence, software and information securities, as well as healthcare. Also, we are considering an investment in telecommunications infrastructure and environmental, social and governance (ESG) as remote work through virtual meetings will continue globally.”

▲Will KIC decrease its equity proportion as well?

“No, we will increase overseas equities from the current 42%. Despite the volatile global stock market, we expect inflation to gradually stabilize as the supply bottleneck effect will be reduced and energy prices will ease. We will keep the current regional allocation of public equities – 63% in North America, 19% in the developed European countries, 8% in developed Asia-Pacific countries such as Japan, Hong Kong and Australia and 9% in developing countries."

"We will employ a barbell strategy – investing in growth sectors including information technology, renewables and electric vehicles as well as in reopening stocks amid the economic recovery.” 
 
▲KIC has announced it will improve the internal structure for more effective decision-making process in investment. What are the key changes?

“Firstly, we founded a group for socially responsible investment under the Investment Strategy & Innovation Division to focus on ESG investment. Last month, we split the Equity Investment Group into the equity investment & strategy Group and the Global Equity Investment Group, as well as creating a Growth Investment Team under the Private Equity Group. We also plan to create a team dedicated to macroeconomic research. All these efforts are for faster and more professional decision making.”     

▲Securing talent is very important for KIC – how will it keep its investment professionals when salary competition is getting fiercer especially in the alternative investment industry?

“We set a yearly budget for incentives for high performances. The budget will be up to 900 million won ($752,194) this year and we are aiming to increase it to secure investment professionals.”

“It is not very easy to increase the basic salaries and bonuses as we manage public funds – instead, we are trying to give our employees great opportunities for education and training and career development in Korea and overseas.”   

▲KIC is investing only in overseas assets. How will it cope with the difficulties with global due diligence?  

“Firstly, KIC will increase the number of talent in our global offices from the current 43 to 65. There are 19 employees in our New York office, 13 in the London office and five in the Singapore office. We are considering founding new overseas offices even though the regions have not been confirmed yet. Additionally, we will also keep up with remote conferences through video calls for fast investment decision-making.”

▲ To rank among the top 10 sovereign wealth funds, KIC will have to increase its AUM to more than $300 billion. Does KIC have any plans to source more capital from the Korean government and the BOK?

“We are in talks with the two parties to increase entrusted assets this year. The government and the bank have entrusted us $85.1 billion and $30 billion, respectively, as of the end of November of 2021. We are doing our best to increase entrusted assets as much as possible in 2022.”

Write to Jae-fu Kim, Jongwoo Kim and Jihyun Kim at hu@hankyung.com
Jihyun Kim edited this article.