What Is the Korea Investment Corporation (KIC)?
Let me tell you about the Korea Investment Corporation (KIC), which is a government-owned organization that handles the sovereign wealth fund for South Korea. It was set up by law in 2005 and started with funding in 2006, getting $17 billion from the Bank of Korea and $3 billion from the Korean Ministry of Strategy and Finance.
As of the end of 2020, KIC manages about $183.1 billion in assets and holds the 15th spot in size among sovereign wealth funds, according to the Sovereign Wealth Fund Institute.
Key Takeaways
- The Korea Investment Corporation (KIC) serves as the sovereign wealth fund for South Korea.
- Established in 2005, it has grown to rank among the top 15 largest sovereign wealth funds worldwide.
- KIC plans to boost its allocation to sustainable investments by 2035.
Understanding the Korea Investment Corporation (KIC)
You need to know that KIC can only invest in assets that fit the guidelines from the Korea Investment Corporation Act. It also helps manage the nation's currency but stays separate from the currency reserves.
KIC's main goals are to build up Korea's sovereign wealth and help develop the Korean financial industry. A steering committee of nine members plus the chair governs it.
Now, the fund follows a 'sustainable growth vision' aiming for 2035, which means ramping up investments in sustainable and socially responsible areas.
KIC Investments
KIC handles a portfolio that's 85% traditional assets like stocks, bonds, and money instruments, and 15% alternative assets such as private equity, real estate, infrastructure, and hedge funds. To diversify more, it has increased exposure to emerging markets since 2010. In 2020, the return on total assets was 13.7%, with a five-year annualized return of 9% and returns since inception at 5.22%.
On its investment philosophy, KIC works to boost returns by minimizing risks through diversification across markets and assets, and by staying flexible to grab opportunities. It goes after benchmark returns (beta) by spreading investments across currencies and countries, as per its guidelines. It also aims for excess returns (alpha) via active management within risk limits.
The steering committee evaluates strategic asset allocation decisions. For traditional assets, risk is managed using ex-ante tracking error from active investing against the benchmark. If an asset class's weighting strays from the set range, adjustments bring it back in line. The portfolio gets rebalanced at set times to keep policy weightings.
Any deals with third-party managers outline available asset classes and benchmarks, which form the basis for risk management and performance checks.
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