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Sovereign wealth funds

KIC says to boost VC deals to lift long-term returns

It posts an 8.05% return for Jan-Aug period in 2021, led by alternatives with 8.57%

Oct 15, 2021 (Gmt+09:00)

San Francisco (Photo: Getty Images Bank)
San Francisco (Photo: Getty Images Bank)

The Korea Investment Corporation (KIC) will step up venture capital investments in North America to lift its long-term returns, the sovereign wealth fund told South Korean lawmakers.

In a report prepared for its annual audit this month, KIC said it will expand alternative investments to 25% by 2027 from 17% in 2021 to prop up investment gains. As part of the efforts, it opened a San Francisco office in March of this year to improve deal sourcing and increase direct investment in startups and technology companies based on the west coast of North America.

“(The San Francisco office) will gather up-to-date information about VC investments and strengthen our investment networks to secure opportunities for private equity deals and to raise our competitive advantage to better respond to the Fourth Industrial Revolution,” KIC said in the report.

The sovereign wealth fund will put its focus on innovative technologies related to robotics, healthcare and renewable energy, it added.

The audit is part of the annual inspection by the National Assembly of the government and state agencies.

ESG, MANDATES TO DOMESTIC INSTITUTIONS

Regarding environmental, social and governance (ESG) criteria, KIC has been incorporating the ESG criteria into all its investment decisions and will expand ESG-themed investments, excluding companies and sectors that fail to comply with the standards.

To fulfill its public role as a state agency, KIC will establish joint ventures with domestic financial institutions to co-invest in overseas private equities and debts, as well as hedge funds.

To help domestic brokerage companies sharpen asset management expertise, it will continue to entrust part of its overseas equities and bond investments to domestic brokerages firms, which they initiated in the first half of this year.

For domestic banks, KIC will provide them with more opportunities to join a syndicated lending group where the sovereign wealth fund participates.

It manages $201 billion as of end-August, which returned 8.05% this year as of end-August. The result is slightly below its average annualized return of 8.96% over the past five years, but broadly in line with the average return achieved by the country's major pension and retirement funds during the same period.

Alternative assets delivered an annualized return of 8.57% as of end-August, outperforming the 6.68% return from traditional assets. Last year, KIC posted a 13.71% return, compared with the previous year's 15.39%.

KIC is entrusted with $85.1 billion by the Ministry of Economy and Finance and $30 billion by the Bank of Korea and put them to overseas assets on their behalf.

Since its inception in 2005, KIC has generated investment gains of $85.9 billion, which translated into an annualized return of 5.53%. 

Yeonhee Kim edited this article.

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