KIC to Make US$10 Billion Investment on Alternative Assets

Korea Investment Corporation (KIC) intends to devote as much as 11 trillion won (US$10 billion) to alternatives, such as hedge funds and real estate, for the next 3 years.

"The KIC is planning to invest US$5–10 billion in alternative assets over the next three years," said Lee Dong-ik, the Chief Investment Officer (CIO)of the KIC, in an August 9 interview with Bloomberg.

In 2009, Korea's sovereign wealth fund began to make alternative investments in a bid to boost long-term rates of return, whose annual average rate of return on alternatives is approximately 7%. Among the 63.4 trillion won (US$57 billion) that the KIC manages, bonds and equities account for 45% and 39% respectively, while alternative investments only make up 6.1%.

The chief investment officer remarked, "The KIC is going to increase its spending on private equity, real estate and hedge funds in order to raise the proportion of its alternative investments up to 20% of its portfolio by the end of 2012," adding, "Our company will diversity and balance our portfolio."

Lee stated that the Korea state fund focuses on developed economies, such as the US and the EU, in term of stock investments. He thinks that the Standard & Poor's 500 Index (S&P 500), which trades at a price-earnings ratio of 16 times, higher than the MSCI Emerging Markets Index trading at 11 times its earnings, may rise further, considering US market stability and its economic recovery.

The CIO pointed out, "We need to think about future cash flow," adding, "Investors are expected to pump more money into developed markets." He also noted, "The Federal Reserve’s scaling back of its quantitative easing program will probably start in Q3 or Q4. But the S&P 500 may rise as much as 10% by the end of this year." The index, meanwhile, has climbed 19.02% so far this year.