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Sovereign wealth funds

KIC earns 60% of its cumulative gains in last two years

Feb 02, 2021 (Gmt+09:00)

KIC Chief Executive Choi Hee-nam during a news conference on Feb.2
KIC Chief Executive Choi Hee-nam during a news conference on Feb.2


Korea Investment Corporation (KIC) earned a combined $42 million in gains between 2019 and 2020, representing 60% of its cumulative earnings since its inception in 2005.

The sovereign wealth fund gained 13.71% from investments in 2020, or $21.8 billion, marking its second consecutive year of a double-digit return, KIC said on Feb. 2. In 2019, it posted a 15.39% return, which translated into $20.2 billion in gains.

KIC, with assets of $183.1 billion, pocketed a combined $71 billion in gains over the past 15 years.

Traditional assets such as equities and bonds returned 14.6% last year, buoyed by liquidity-driven market rallies. Accounting for 84.7% of its portfolio, they outperformed their benchmarks by 1.44% points on average, the widest margin since the sovereign wealth fund was established in 2005.

Its 2020 return is higher than the 10.9% posted last year by Norway’s Government Pension Fund Global, the world’s largest sovereign wealth fund with $1.1 trillion in assets, KIC said in a statement.

The gains of $21.8 billion are also equivalent to 4.6% of the South Korean government’s 2020 budget and 1.8 times larger than Samsung Electronics Co.’s corporate tax of 13.2 trillion won ($11.8 billion) paid in 2019.

Asset type (ratio)  2020 return
Equities (42.7%) 19.16%
Fixed income (35.2%) 9.88%
Alternatives (15.3%)  7.7%
*Others (6.8%) N/A
*Composed of inflation-linked bonds, raw materials, cash and others


VC INVESTMENT

To bolster returns in the global trend of digital transformation, KIC is set to open its fourth overseas office in San Francisco in the first half of this year. It will begin VC investment from the second half of this year, KIC Chief Executive Choi Hee-nam said in a press conference.

Additionally, the world’s 14th-largest sovereign wealth fund is seeking to expand the pool of institutions that entrust KIC with overseas investments beyond the finance ministry and the Bank of Korea. It is working on the relevant law revision, which will allow mutual aid associations and cooperatives to allocate funds to KIC.

Choi stressed that its expansionary move does not mean its penetration into the domestic asset management market, but cooperating with Korean asset managers by winning advisory contracts for their overseas alternative investments.

“To contribute to the development of our country's financial industry, we will continue to expand allocations to both domestic and foreign asset managers operating in Korea,” said Choi.

Separately, KIC is planning to set up joint ventures with domestic pension funds and mutual aid associations to co-invest in overseas assets. In July 2020, it announced a $400 million joint venture with NongHyup, or the National Agricultural Cooperative Federation, to invest in private equity deals.

KIC’s total assets doubled to $183.1 billion by the end of 2020, including the additional allocation of $4 billion by the finance ministry. Back in 2015, its assets stood at $91.8 billion.

It is aiming to join the ranks of the world’s top 10 sovereign wealth funds by boosting its assets to $300 billion, according to the statement.

Regarding environmental, social and corporate governance matters, KIC has begun to apply the criteria to all its asset classes and plans to increase ESG-themed investments.

By Seon-Pyo Hong

rickey@hankyung.com 

Yeonhee Kim edited this article.

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