Korea Investment Corporation (KIC)

 What Is the Korea Investment Corporation (KIC)?

Established in 2005 and founded in 2006, KIC (Korea Investment Corporation) is a government-owned investment corporation entrusted with managing public funds and managed by the Bank of Korea to invest in International Financial Assets.

It reports its business activities to the National Assembly in accordance with the National Assembly Act and the Act on the Inspection and Investigation of State Administration. Therefore, we are subject to inspections by the National Assembly every year.

Korean Investment Corporation is a wealth fund for the nation of South Korea. It was started with initial deposits by the Government of South Korea and the Bank of Korea amounting to $20 Billion.

With net assets tuning to the value of $183.8 Billion at the end of 2020, it is one of the world's most significant sovereign wealth funds and ranked 15th per Sovereign Wealth Fund Institute's rankings.

Understanding The Korea Investment Corporation (KIC)

KIC was started with a vision to increase national wealth and contribute to the growth of Korea's finance industry. Eventually, moving towards regularly producing returns that outpace inflation levels to protect and improve the global buying power of Sovereign assets and to support the growth of the domestic financial sector.

According to the KIC Act, the sovereign wealth fund must have a corporate governance structure that guarantees investment independence and operational autonomy from government sponsors.

In reality, there are several levels. There are three tiers of senior leadership at the top of the company:

• The Steering Committee
• The Board of Directors
• The Chief Executive

The highest governing body of KIC, the Steering Committee, ensures independence and self-reliance.

It comprises nine members, including the chairman, six business professionals, the KIC CEO, and representatives of the Bank of Korea Governor and the Minister of Strategy and Finance, two entities giving KIC assets worth more than one trillion won.

In compliance with the National Assembly Act and the Act on the Inspection and Investigation of State Administration, KIC reports its business operations to the National Assembly. Accordingly, the National Assembly conducts inspections of us every year.

The Korea Investment Corporation Act limits the KIC's investment exclusively in assets that comply with specific rules. In addition, although it manages the country's currency separately from its currency reserves, the KIC controls the country's currency.

The fund's "sustainable growth vision" now set 2035 as its target year. Increasing exposure to environmentally friendly and socially conscious investing is part of their plan.

It aims to increase returns while

1. We are trying to minimize the risks possessed by retail investors through various techniques like portfolio diversification.
2. Capturing Investment Opportunities through enhancing flexibility

The benchmark objectives and eligible asset classes in the investment management agreements signed by KIC and its sponsors serve as the foundation for our risk management and performance evaluation.

Korean Investment Corporation's Portfolio and Investments

KIC investments generally are in traditional assets, and the other 15% are in alternative investment vehicles. Since 2010, the KIC has extended its exposure to developing economies as part of its efforts to diversify its portfolio. As a result, KIC's return on total assets in 2020 was 13.7%, with annualized returns from the inception of 5.22% and a five-year annualized return of 9%.

A steering committee reviews decisions made on the deployment of strategic assets. The fund uses the benchmark's ex-ante tracking error from active investing to manage risk with conventional assets.

Adjustments are made if an asset class's weighting varies from a predetermined range about the benchmark so that exposure stays within the predetermined range. At certain intervals, the portfolio is rebalanced to maintain the policy weightings for each asset type.

The available asset classes and benchmark objectives will be specified in any agreements KIC and outside portfolio managers enter. These serve as the foundation for risk management and performance assessment.

A Q4 2021 investment allocation example

KIC authorized the following asset allocation (in US dollars) after the fourth quarter of 2018:

1. Traditional assets under management of $71 billion
2. Managed alternative assets worth $16.4 billion
3. Special and other assets under management totaling $11.6 billion

As seen above, the KIC diversifies into alternative and special assets while significantly focusing on traditional assets.

Researched and authored by Arshnoor Kamboj | LinkedIn

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