Friday, April 10, 2020
Bank of Korea Entrusted Fund Management to KIC
Sovereign Fund Starting Again
Bank of Korea Entrusted Fund Management to KIC
  • By Jung Suk-yee
  • January 19, 2017, 07:00
Share articles

Korea Investment Corporation (KIC) began to provide the entrusted management service from the Bank of Korea as CEO Eun Sung-soo took office last year.
Korea Investment Corporation (KIC) began to provide the entrusted management service from the Bank of Korea as CEO Eun Sung-soo took office last year.

 

It has been found that the Bank of Korea entrusted the management of US$5 billion to Korea Investment Corporation (KIC), the sovereign wealth fund of South Korea, last year after a hiatus of five years. Back in 2007, the central bank had entrusted a record high of US$11.1 billion.

KIC began to provide that type of entrusted management service for the Ministry of Strategy & Finance and the Bank of Korea in 2006 in compliance with the KIC Act. As of the end of 2016, the total amount reached US$92.5 billion, including US$67.5 billion from the ministry. The central bank, on the contrary, cut its trustor-trustee relationship with the corporation after the sale of Merrill Lynch to the Bank of America in 2008. The amount from the central bank stood at US$4.9 billion in 2008. KIC invested US$2 billion in Merrill Lynch in 2008 but that year’s global financial crisis resulted in the sale of Merrill Lynch, which, in turn, led to a loss of about one trillion won on the part of KIC.

After that shock, the Bank of Korea stopped sending money to KIC before sending US$3 billion in 2011, when KIC invested extra US$78 million in Merrill Lynch for scale trading. This led to even greater losses with the Bank of America stock price plummeting as a result of a decline in the credit rating of the U.S. Controversies arose regarding KIC’s fund management and the Bank of Korea entrusted nothing to KIC between 2012 and 2015.

Things have changed by CEO Eun Sung-soo, who recently celebrated his first anniversary at KIC. In May last year, he invited former head of the International Department of the Bank of Korea Hong Seung-je as the chief risk officer of KIC in an effort to mend its relations with the central bank. As of August 31, 2016, KIC recorded an investment yield of 5.56% compared to the beginning of the same year.