Proposed regulatory reforms allowing private institutions to entrust their assets to sovereign wealth fund Korea Investment Corporation (KIC) have had a mixed reaction.
Sources said a draft revision of the Korean Investment Corporation Act had been submitted to the National Assembly that would permit KIC to manage assets entrusted by mutual aid associations and federations in addition to the government, the Bank of Korea and public funds.
The revision would “create a virtuous cycle” in which sovereign wealth and private funds could grow together by using its well-established global network of investments, KIC said at an online press conference on Tuesday (February 2).
KIC has focused on the needs of private funds seeking to increase alternative investments such as real estate, infrastructure and private equity and last year linked up with the National Agricultural Cooperative Federation to invest in alternative assets abroad. The amended act will allow KIC to invest assets entrusted by private funds only in those asset classes, rather than traditional stocks and bonds.
Private funds could benefit from the change as KIC is expected to charge lower management fees than global asset managers, with which they have typically worked to gain exposure to foreign alternative investments, industry watchers said.
However, large mutual aid associations and federations with sufficient resources and well-organized structures seem lukewarm to KIC’s plans. They could also face objections from their trustees, who prefer the current structure of managing assets.
“Lower management fees could be attractive,” an official at one institution said. “But higher returns cannot be guaranteed.”
On the other hand, it may lead to increased interest by public funds in entrusting their assets with the sovereign wealth fund, observers said.
South Korea has 67 public funds which were created to meet public service demand. Existing laws allow them to entrust their assets to KIC, but they have so far preferred to use the so-called investment pool for public funds, a scheme developed by the Ministry of Economy and Finance to help those funds manage their assets.
The Radioactive Waste Management Fund, launched in 2009, had total assets of 2.63 trillion won ($2.3 billion) at the end of 2019, with 66.22% managed by the investment pool for public funds. Smaller public funds, such as the Korea Foundation Fund, with 105.5 billion won of assets, and the Global Disease Eradication Fund (51.2 billion won of assets), have entrusted more than 80% of total assets to the scheme.
An increase in public funds entrusting their assets with KIC would help expand the sovereign wealth fund’s assets under management at a faster pace.
The fund, which managed $183.1 billion at the end of 2020, ranked 14th among sovereign wealth funds globally, according to the Sovereign Wealth Fund Institute. It aims to become one of the ten largest sovereign funds. (Reporting by Ar-rum Rho)