What does Korea Investment Corporation (KIC) entail?
The Korea Investment Corporation (KIC), a government-owned investment company, manages the South Korean government’s sovereign wealth fund (SWF). In 2005, a law established the KIC, and funding began the following year. The KIC received $17 billion in initial deposits from the Bank of Korea and $3 billion from the Korean Ministry of Strategy and Finance.
According to the rankings of the Sovereign Wealth Fund Institute, the KIC ranks 15th in size among sovereign wealth funds, with approximately USD$183,1 billion in assets under management by the end of 2020.
Comprehension of the Korea Investment Corporation
The Korea Investment Corporation Act restricts the KIC to investing solely in assets that adhere to its stipulations. The KIC is also responsible for administering the nation’s currency, but it is separate from the country’s currency reserves.
The objectives of the KIC are to contribute to the growth of the Korean financial sector and to increase Korea’s sovereign wealth. A steering committee with nine members and one chair oversees the KIC.
The fund now has a “sustainable growth vision” with a 2035 target date. This includes increasing the proportion of investments that are sustainable and socially responsible.
KIC Investments
The KIC manages a portfolio comprised of 85% traditional assets (such as stocks, bonds, and money market instruments) and 15% alternative assets, such as private equity, real estate, infrastructure initiatives, and hedge funds.
Since 2010, the KIC has increased its exposure to emerging markets to diversify its investment portfolio. The return on total assets for KIC in 2020 was 13.7%, with a five-year annualized return of 9% and an annualized return since inception of 5.222%.
Regarding its investment philosophy, it states that “KIC seeks to increase returns while (1) minimizing the risks associated with individual markets and assets through portfolio diversification; and (2) exercising flexibility to take advantage of investment opportunities.”
KIC seeks benchmark returns (beta) by diversifying its investments across various currencies and nations, as specified in its investment management guidelines. KIC also seeks to generate excess returns over benchmarks (alpha) through active management at an acceptable level of risk.
A steering committee evaluates decisions concerning the strategic allocation of assets. Concerning traditional assets, the fund manages risk using the ex-ante tracking error resulting from active investing relative to the benchmark. Adjustments are made so that exposure lies within a predetermined range if the weighting of an asset class deviates from a predetermined range relative to the benchmark. The portfolio is rebalanced at predetermined intervals to maintain asset class weightings by investment policy.
Agreements between KIC and third-party portfolio managers will outline available asset classes and benchmark objectives, which will serve as the basis for risk management and performance evaluation.
Conclusion
- The Korea Investment Fund (KIC) is South Korea’s sovereign wealth fund.
- Since its start in 2005, the fund has grown to become one of the world’s fifteen most considerable sovereign wealth funds.
- By 2035, the KIC wants to invest more money in safe projects.
