Korean SWF targets 19% exposure to alternatives

The sovereign fund plans to increase its allocation to alternative investments by 2020.

Korea Investment Corporation (KIC) plans to increase its exposure to alternative assets by 5 percent over the course of two years, bringing its total exposure to 19 percent, its newly appointed chief executive officer, Heenam Choi, has said.

The move comes as the fund plans to achieve higher risk-adjusted returns from alternative investment assets with low correlation to public markets, according to Choi.

“We need to boost our investment performance and increase our assets under management to more than $200 billion to stand with the top sovereign wealth funds,” he said in a statement published after his first press conference held in Seoul on 17 May. The fund currently has $134.1 billion in investible assets.

It is also understood the sovereign wealth fund is in the process of hiring an undisclosed number of managers to focus on secondary strategies, two industry sources confirmed with PDI on 14 May. KIC declined to comment.

PDI understands that the fund selects managers by inviting managers to submit private bids and proposals via a consultant. PDI previously reported that Korean pensions funds, including Public Officials Benefit Association and Construction Workers’ Mutual Aid Fund, have issued publicly-available request for proposals to employ offshore alternative investment managers.

KIC manages public funds entrusted by the Korean government, including funds from the Ministry of Strategy and Finance of Korea and Bank of Korea.

As the new CEO looks to grow KIC’s investable asset size to $200 billion within three years, the sovereign fund is looking to add other domestic pension funds to its books.

This is likely to be facilitated by the recent Korea Investment Corporation Act, which governs the establishment of the investment corporation and was revised in November 2016. The revision aimed to add more public funds that have limited resources to KIC’s assigned asset pool.

However, a spokesperson from KIC confirmed with PDI on 17 May that no additional pension pools have been added to date.

The revised legislation also means the sovereign fund now includes infrastructure and loan-type assets in its asset management framework for entrusted fund pools, according to a statement from the Ministry of Government Legislation of Korea published on 6 September, 2016.

PDI previously reported on KIC’s plan to gain further exposure to the mezzanine and junior debt tranches across real assets over the course of 2018.

KIC’s property and infrastructure portfolio was worth $78 billion in end-2017. Its holding period return was recorded at 8.1 percent, given its initial investment in real asset investments on 15 March, 2010.

The sovereign fund allocated 14.4 percent of its total investable assets to alternatives as of the fiscal year 2017, by increasing its exposure to the asset class from 13.7 percent in 2016.

KIC opened a Singapore office in September 2017 to seek better deal sourcing opportunities and yields from real asset investments, targeting Australia, New Zealand and India.