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Sovereign wealth funds

KIC says traditional assets dwarf alternatives in 2019-20

Lawmakers criticize two straight years of drops in the proportion of KIC's alternative assets

Oct 21, 2021 (Gmt+09:00)

KIC Chief Executive Jin Seoungho speaks during a parliamentary Q&A session on Oct. 13
KIC Chief Executive Jin Seoungho speaks during a parliamentary Q&A session on Oct. 13

The strong performance of traditional assets such as equities has resulted in a decrease in the proportion of alternative assets at Korea Investment Corporation (KIC) for two consecutive years, 2019 and 2020, contrary to KIC's promise to expand alternative investments, data showed.

But the two straight years of declines do not indicate the sovereign wealth fund's shift from its announced plan to step up alternative investments to a quarter of its portfolio by 2027, KIC said in a recent parliamentary Q&A session.

The remarks were made during the annual audit of KIC by South Korean lawmakers, in response to their sharp criticism of the declining proportion of alternative investments. 

In 2020, alternative investments took up 15.3% of KIC's assets in terms of net asset value, down 0.3 percentage points from a year earlier. That compared with 15.6% in 2019 and its highest level of 16.5% in 2018.

But the decrease was attributed in large part to double-digit returns from traditional assets, KIC told the lawmakers. This was first reported by the Bell, a domestic online news site and confirmed by the KIC.

KIC's Investment Returns

Year Traditional Alternative
2019 16.6% 9.0%
2020 14.6% 9.2%
Source: KIC

Notwithstanding the reduced proportion, the amount of its alternative investments has been increasing on a year-on-year basis since it began alternative investments in 2009.

"We will gradually expand alternatives assets by strengthening strategic partnerships with investment firms, building the expertise of our in-house investment professionals and diversifying the regions and strategies of our investment," KIC said in a report prepared for the annual parliamentary inspection.

"To earn a steady stream of returns, we will spread alternative investments across years."

Starting with private equity in 2009, KIC has been diversifying into infrastructure and hedge funds, expanding the amount and scope of alternative investments.

KIC plans to boost alternative investments to 25% by 2027 from 17% in 2021 to prop up investment gains, in particular, by raising exposure to venture capital, private equity and debt, and infrastructure.

Year Value of Alternative Assets Private Equity
2018 $21.6 billion --
2019 $24.5 billion $9.3 billion
2020 $27.9 billion $11.8 billion
Source: KIC

Yeonhee Kim edited this article.

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