What is the Korea Investment Corporation (KIC)?
The Korea Investment Corporation (KIC) is a fully government-owned investment organization responsible for managing the sovereign wealth fund of South Korea. Born out of legislative action in 2005 and beginning its financial ventures in 2006, the KIC initially received an infusion of $17 billion from the Bank of Korea and $3 billion from the Korean Ministry of Strategy and Finance.
The KIC currently oversees an extensive portfolio, with approximately USD $183.1 billion in assets under management by the end of 2020, proudly ranking within the top 15 largest sovereign wealth funds globally.
Key Highlights
- National Wealth Steward: The KIC functions as the steward of South Korea’s sovereign wealth, channeling national funds into strategic investments globally.
- Growth Trajectory: Since its inception, the KIC has skyrocketed to be among the world’s top 15 wealth funds by size.
- Sustainability Commitment: Aiming for a sustainable future, the KIC plans to bolster its allocation to sustainable investments by the year 2035.
Understanding the Korea Investment Corporation (KIC)
Operating within the framework of the Korea Investment Corporation Act, the KIC adheres strictly to designated investment guidelines. Beyond mere asset management, the KIC also plays a crucial role in managing the nation’s currency without overlapping with the country’s central currency reserves.
The primary goals of the KIC are enhancing Korea’s sovereign wealth and fostering the development of the national financial industry. These objectives are pursued under the governance of a nine-member steering committee plus a chair who collectively guide the organization’s strategic directives.
Dedicated to a vision of “sustainable growth,” the KIC is gearing up to adjust its investment focus, embracing sustainable and socially responsible investments projected to peak by 2035.
KIC Investment Portfolio
The KIC administers a diverse portfolio structured to balance traditional and alternative assets. Approximately 85% of its portfolio comprises traditional assets such as stocks, bonds, and money market instruments, whereas the remaining 15% consists of alternative assets, including private equity, real estate, infrastructure projects, and hedge funds.
Championed by its drive to heighten portfolio diversification, since 2010, the KIC has amplified its investment footprint within emerging markets. Remarkably, the KIC attained a 13.7% return on total assets in 2020, with a commendable five-year annualized return of 9% and an annualized return of 5.22% since inception.
In light of its investment methodology, the KIC states that “empowered by formidable diversification strategies, KIC minimizes risks from individual markets and assets while being agile enough to seize lucrative investment opportunities.” The KIC aims to emulate benchmark returns through broad investments diversified across a spectrum of currencies and countries. Concurrently, skilled active management seeks to outperform benchmarks within calculated risk levels.
Strategic asset allocation decisions, essential to enduring success, undergo rigorous evaluation by the steering committee. Regarding traditional assets, risk management is honed using anticipatory tracking errors from active investments relative to benchmarks. Should an asset class’s weighting diverge significantly from set ranges against benchmarks, timely adjustments are made to ensure portfolio composition aligns with policy weightings, emphasizing disciplined periodic rebalancing.
For collaborations between the KIC and third-party portfolio managers, explicitly defined asset classes and benchmark targets anchor risk management and performance assessment frameworks.
Related Terms: sovereign wealth fund, investment management, risk management, portfolio diversification.
References
- KIC. “Investment - Portfolio Highlights”.
- SWFI. “Sovereign Wealth Fund Rankings”.
- KIC. “FAQs”.
- KIC. “About KIC”.
