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Why Korea's KIC is speeding up alternatives allocation

The sovereign wealth fund surpassed $200 billion for the first time since its inception and is planning to increase alternatives allocation to 25% of its portfolio by 2025.
Why Korea's KIC is speeding up alternatives allocation

The Korea Investment Corporation (KIC) reached $205 billion in assets under management, and is planning to bring its 25% alternatives allocation target forward by two years, a spokesperson confirmed with AsianInvestor.

Alternative assets increased to 17.5% of KIC’s total portfolio at the end of 2021, up from 15.3% a year earlier, and posted 8.83% for an annualised return since inception. The annualised return for private equity was 11.33%, with real estate and infrastructure at 7.76% and hedge funds at 5.64%.

“Our sophisticated asset allocation strategy responded well to high market volatility and led to solid investment results last year,” said KIC chief executive Seoungho Jin. “KIC will continue to expand alternative assets to support sustainable long-term performance.”

The sovereign wealth fund announced Thursday that its assets under management reached $205 billion as of December 31 2021, with an annual investment return of 9.13%. KIC’s assets thereby exceeded $200 billion for the first time since its establishment in 2005.

ALTERNATIVES RAMP-UP

The sovereign wealth fund aims to make alternatives 25% of its portfolio by 2025, which was previously planned to happen in 2027, a spokesperson confirmed.

To reach this target, the pace of investment will likely remain high for the asset class, although the value decline of equities in the portfolio, due to low markets, might ease the task of increasing the percentage share of alternatives.

KIC only invests in alternatives overseas, and the asset class is overseen directly by chief investment officer Daeyang Park, or David Park. Investments are done through its regional offices in Singapore, London, New York and most recently San Francisco, where, KIC hopes to keep itself abreast of the tech industry in the entrepreneurship epicentre of Silicon Valley.

Daeyang Park

In September 2021, KIC announced plans to expand its ESG and alternative investment teams in its biggest hiring program in six years, with a total of 22 new investment and operational roles being offered.

The spokesperson declined to comment on “details of asset allocation targets among alternative asset categories, such as private equity, real estate and infrastructure and hedge funds”.

ALSO READ: KIC to expand ESG and alt teams with 22 new hires

Daeyang Park said in a keynote at the 14th Institutional Investors Week Korea hosted by AsianInvestor in June 2021, that KIC would be focusing on data centres and warehouse infrastructure and e-commerce platforms linked to online logistics channels and automated logistics systems. The fund would also focus on biotechnology and welfare-related industries for the elderly.

ALSO READ: KIC to cast eyes onto infrastructure, e-commerce, biotech

Traditional assets generated an annual return of 6.75%, with equities accounting for 40.6% out of total assets and fixed income at 34.9%. With equity markets taking a rough beating so far in 2022 and volatility-spurring events around the world still ongoing, KIC will look gratefully at the performance of its alternatives portfolio and rely on that the 2022 performance will match the previous year to deliver downside protection.

Kyungsik Lee

KIC preemptively prepared for the changing equity environment. Last year the Korean sovereign wealth fund cut growth stocks in the technology, media and telecom sector in favour of bluechips, its managing director of equities, Kyungsik Lee, said at the 14th Institutional Investors Week Korea hosted by AsianInvestor in June 2021.

ALSO READ: KIC to lean towards value stocks

KIC has generated $87.9 billion in accumulated investment gains since inception, including $16.9 billion last year.

 

¬ Haymarket Media Limited. All rights reserved.
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