Korea Investment Corporation: ‘We are investing a lot in alternatives’

KIC chairman Heenam Choi explains why the sovereign wealth fund is looking to invest in alternative asset classes.

Korea Investment Corporation is looking to allocate further capital to offshore alternative assets with a view to ramping up its AUM and diversifying its portfolio.

KIC chairman Heenam Choi said the fund would have a particular focus on infrastructure and real estate.

Speaking at KIC’s annual press conference in Seoul on 5 April, Choi added that the fund was targeting an overall allocation in alternative investments of 20 percent by 2021. He said the aim was to diversify KIC’s portfolio and generate stable long-term returns from its assets.

When asked if he was considering any specific strategy to increase the fund’s assets and boost its returns, such as purchasing distressed debt investments, he said: “We are trying to maximise returns within our risk budget for alternative investments. We have existing exposures to the distressed debt investment strategy through other investors in the private equity side.”

In his inaugural speech as chairman on 30 March 2018, Choi said he was aiming to boost KIC’s investment performance and increase its assets to more than $200 billion in order to make it one of the top 10 sovereign wealth funds by AUM.

As the sovereign body has been increasing its allocation to alternatives, its risk management team have been focusing on the challenges that are particular to these asset classes.

KIC’s chief risk officer and executive vice-president, Seung Je Hong, told PDI: “I think the alternative investment industry is not standardised enough, and therefore it is perceived to be risky when making investment decisions by comparing return profiles with a GP’s peer group or their track records.”

This lack of standardisation, especially for offshore private equity investment strategies, means the risk management team evaluate each prospective investment on a deal-by-deal basis.

For instance, they analyse a baseline of each investment case to assess whether a prospective return can be maintained over a certain period. They also conduct stress tests to project adequate exit plans and, if they then deem it necessary, reallocate assets by sub-sector and geography.

As sister publication PDI reported in February, KIC entered into a memorandum of understanding with Korea Post, another Korean institution that was managing 123.7 trillion won ($107.6 billion; €95.6 billion) of assets at the end of 2018. KIC will undertake offshore asset management activities on behalf of Korea Post, although the expected timeline has not been disclosed.

It is understood that the two institutions plan to co-invest in an offshore infrastructure equity deal this year.

KIC had $136.7 billion of net assets under management at the end of February. Of these, a consigned fund from South Korea’s Ministry of Economy and Finance accounted for $77.6 billion, while another from the Bank of Korea was worth $25 billion.

The fund’s overall investment return was 4.13 percent, on an annualised basis, as of end-February. Its alternative investment portfolio has generated 7.39 percent in annualised returns since the alternatives portfolio’s inception in 2009.