Sovereign wealth fund Korea Investment Corporation (KIC) achieved an investment return of $21.8 billion last year despite fallout from the Covid-19 pandemic and the economic slowdown, largely due to a bigger allocation to alternative investments.
Choi Hee-nam, chief executive of the South Korean fund, said on Tuesday (February 2) that the return on investment was 13.7%, compared with a 15.39% return in 2019. It was the third highest of 30 global sovereign wealth funds, behind Norway’s Norges Bank Investment Management (19.9%) and China Investment Corporation (17.4%).
The fund’s assets under management reached $183.1 billion at the end of 2020, growing two-fold in the past five years, Choi said during an online press conference.
“We have seen stable investment returns in the past year as a result of our continued efforts to diversify the investment portfolio and invest in undervalued assets,” he said.
The investment return is equivalent to about 4.6% of the South Korean government’s budget for 2020. Choi said that such a performance was a “meaningful achievement for the national economy” as well.
He noted that the fund’s efforts to enhance long-term returns from its investments by gradually increasing its exposure to alternative assets have borne fruit.
KIC started to invest in alternative assets, such as private equity, real estate, infrastructure and hedge funds, when the global financial crisis hit in 2009. Since then, the asset classes have recorded an annualized investment return of 7.7%.
Choi announced plans shortly after taking the helm at KIC in March 2018 to raise the ratio of alternative assets in its portfolio to 19% by 2020. KIC managed $27.9 billion of alternative investments at end-2020, up 13% from a year earlier. Equities comprised 42.7% of the portfolio, fixed income 35.2% and alternative investments 15.3%.
Capitalizing on its strong performance, KIC was entrusted with an additional $4 billion by the Bank of Korea and the Ministry of Economy and Finance last year.
The fund will open an office in San Francisco in the first half of the year in a bid to expand alternative investments in North America. It also plans to step up efforts to increase investments in technology startups in Silicon Valley.
However, Choi said that with the pandemic showing few signs of easing, prospects for a long-term return on investment were declining. KIC will boost its investments in the environment, while reviewing measures to cut investments in coal, Choi added. (Reporting by Ar-rum Rho)