KIC expects AUM to hit $50 billion

Executives at Korea Investment Corporation say the country’s sole sovereign wealth fund could see its total asset size grow from around $40 billion to up to $50 billion by the end of 2011.

That depends on the country maintaining its surplus current account balance despite the won appreciating against the US dollar. It’s this surplus that fuels the growth in Bank of Korea’s foreign reserves. BoK is one of KIC’s two fund providers, along with the Ministry of Strategy and Finance.

The KIC is also banking on its current investment portfolio to grow.

At present, most of KIC’s assets are allocated to global public securities, but alternative investments are slated to account for as much as 20% of the total, says Don Lee Dong-ik, managing director and head of its private markets group.

His team is looking to add more to private equity funds, hedge funds and real-estate opportunities, in balanced proportion.

The young KIC continued to deploy its growing pool of assets throughout the 2008-09 downturn and its public-market investments have enjoyed a healthy return so far. This has stemmed from the institution building its own investment process, risk-management system and compliance structure to handle such a large amount of the national wealth.

The MoSF has already announced it will boost its seeding of KIC later this year, and Lee says the fund is looking for risk assets to enhance returns.

In particular, the private markets group wants to add emerging markets to its existing portfolio of developed market assets. His team is also looking to diversify the buyout and mid-cap private-equity portfolio out of the United States – where it has made its biggest direct investments to date – to include Europe. KIC has a New York office already and will open one in London later this year.

For real estate, the team is looking to diversify regions including adding Australia, where it has yet to make an investment, and in more opportunistic assets or recapitalisation stories, as opposed to core investments.

For such illiquid strategies, KIC is also pursuing co-investment opportunities with other sovereign funds or with general partners. Last year it clubbed together with China Investment Corporation, Temasek and Abu Dhabi Investment Company to take a $900 million stake in shale-gas miner Chesapeake Energy in the US.

In hedge funds, KIC wants to diversify its existing portfolio and it is also planning to devise a scheme of access to smaller, niche single managers, globally.