KIC doubles Alts allocation and shoots for $100bn AUM

Korea Investment Corporation’s total assets under management are expected to surpass $100 billion by the end of 2015, says the sovereign wealth fund’s president and CEO.

The fund intends to increase the proportion of its investment in alternative assets from the current 8% to 15% by the end of this year, with the intention of maintaining a high return profile for the fund.  

Eventually the alternative proportion will be increased to 20% within five years.

Hong-Chul 'Hank' Ahn, KIC's CEO & president, said the alternative investments structure and portfolio assets will be similar to those of the Yale University endowment, CalPERS and the Canada Pension Plan Investment Board. Although CalPERS has moved to lower its exposure to alternatives this year, the aforementioned institutions have typically held around 20% of their assets in alternative strategies. 

KIC’s ambitions and forecasts were spelled out at a seminar to celebrate the 10th anniversary of the fund's foundation, held in Seoul on July 1.

The sovereign fund’s total AUM reached $86 billion as of late June this year. It has been entrusted with $70 billion overall since launch by the Ministry of Strategy and Finance (MOSF) and the Bank of Korea (BOK). It started with $30 billion in 2005 and both MOSF and the BOK have increased their asset transfers since that time. KIC is expecting another $10 billion inflow by the end of 2015 from one or both of them, which will bring it close to the target of $100 billion. 

So KIC has generated $16 billion in returns on the $70bn pledged by the MOSF and the BOK. The annual average rate of return has been 7.43% over the past five years and 4.23% over the past ten years. Notably, the rate of returns was 10.03% in 2014, surpassing the benchmark of the MOSF and the BOK by 1.31%.

The alternative investment portion currently accounts for 8% of the investment portfolio. At the end of 2014, KIC’s broad asset allocation was as follows: stocks 43.8%, bonds 39.2%, alternatives 8%, and others 9%. Of the traditional elements of the portfolio, KIC has managed 73.2% internally and the rest using external managers.

At the Seoul ceremony, Ahn acknowledged that the $2 billion investment in US investment bank Merrill Lynch in 2008 was a mistake. He added “we have now recovered 70% of the investment and regained our balance from it.” The investment loss to the state-owned corporation is estimated at $800 million so far.

Looking at other investment options, KIC has finally scrapped plans to purchase a 19% share of the LA Dodgers, an American Major League baseball team, after much debate among the public at large in Korea. The decision rested on the high risk of losing the entire investment and unfavourable contract conditions, according to a statement from KIC.