By Park Hyong-ki
Korea Investment Corp. (KIC) CEO Choi Hee-nam may have a lot of things to worry about mainly concerning the future course of the country's sovereign wealth fund manager.
Economic headwinds are blowing hard not only toward Korea but also global markets. When economies slow down, investors ― in KIC's case, the Ministry of Economy and Finance and the Bank of Korea (BOK) ― tend to get conservative.
Under the circumstances, the finance ministry and the central bank may not want to hand over more money to the sovereign wealth fund for management.
KIC's assets under management stood at $138.3 billion as of early 2019.
The finance ministry and the BOK have entrusted KIC to manage some of their dollar-denominated reserves worth $103 billion.
But KIC CEO Choi, without a doubt, would want more money so his organization can manage at least $200 billion of assets as it seeks to become an "active and aggressive global manager."
It could only do so by increasing investments in alternative assets such as infrastructure for higher returns.
The fund manager is trying to boost such assets to account for 20 percent of KIC's portfolio by the end of Choi's term in 2021, up from 16 percent.
It is aiming for annual returns of around 5 percent.
Given these goals, it will have to slightly decrease the portion of its investments in global stocks, bonds and commodities amid growing uncertainties.
Stocks may offer attractive returns when economies are doing well.
The U.S. Federal Reserve is expected to cut its interest rate in the near future.
This may be good news for the global stock markets.
But it could create an asset bubble, which could adversely affect investors and their asset managers, including KIC, when it bursts.
And no one can accurately predict when that could happen following rate cuts amid a slowdown.
Fixed-income securities, on the other hand, are safe assets in both good times and bad.
KIC's investments in stocks and bonds each account for 40 percent.
"It is still considered a minor player making small bets in the global market. If it suddenly turns aggressive, KIC will be politically scrutinized," an industry source said.
The source pointed to KIC's past deal in which it invested in Merrill Lynch when the global financial crisis erupted in 2008.
Even though it was able to retrieve its investment plus some gains following the Bank of America's acquisition of the investment bank, KIC is still being restrained because of this deal.
"This deal has been following KIC since day one, making it hard for the sovereign wealth fund to take risks, which are needed for bigger returns," another source said.
It is also one of the reasons KIC is unable to make large investments in potential startups, which Choi wants to do in the long term.
As in stocks, bonds and alternative assets, the sovereign wealth fund puts very little in venture funds that invest in startups.
Unlike the National Pension Service, KIC usually acquires less than a 1 percent stake in all assets for more than seven years on average.
 |
| KIC CEO Choi Hee-nam |
Economic headwinds are blowing hard not only toward Korea but also global markets. When economies slow down, investors ― in KIC's case, the Ministry of Economy and Finance and the Bank of Korea (BOK) ― tend to get conservative.
Under the circumstances, the finance ministry and the central bank may not want to hand over more money to the sovereign wealth fund for management.
KIC's assets under management stood at $138.3 billion as of early 2019.
The finance ministry and the BOK have entrusted KIC to manage some of their dollar-denominated reserves worth $103 billion.
But KIC CEO Choi, without a doubt, would want more money so his organization can manage at least $200 billion of assets as it seeks to become an "active and aggressive global manager."
It could only do so by increasing investments in alternative assets such as infrastructure for higher returns.
The fund manager is trying to boost such assets to account for 20 percent of KIC's portfolio by the end of Choi's term in 2021, up from 16 percent.
It is aiming for annual returns of around 5 percent.
Given these goals, it will have to slightly decrease the portion of its investments in global stocks, bonds and commodities amid growing uncertainties.
Stocks may offer attractive returns when economies are doing well.
The U.S. Federal Reserve is expected to cut its interest rate in the near future.
This may be good news for the global stock markets.
But it could create an asset bubble, which could adversely affect investors and their asset managers, including KIC, when it bursts.
And no one can accurately predict when that could happen following rate cuts amid a slowdown.
Fixed-income securities, on the other hand, are safe assets in both good times and bad.
KIC's investments in stocks and bonds each account for 40 percent.
"It is still considered a minor player making small bets in the global market. If it suddenly turns aggressive, KIC will be politically scrutinized," an industry source said.
The source pointed to KIC's past deal in which it invested in Merrill Lynch when the global financial crisis erupted in 2008.
Even though it was able to retrieve its investment plus some gains following the Bank of America's acquisition of the investment bank, KIC is still being restrained because of this deal.
"This deal has been following KIC since day one, making it hard for the sovereign wealth fund to take risks, which are needed for bigger returns," another source said.
It is also one of the reasons KIC is unable to make large investments in potential startups, which Choi wants to do in the long term.
As in stocks, bonds and alternative assets, the sovereign wealth fund puts very little in venture funds that invest in startups.
Unlike the National Pension Service, KIC usually acquires less than a 1 percent stake in all assets for more than seven years on average.
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