Efficiently Managing Korea’s Public Funds

KOREA Investment Corporation (KIC) was launched in 2005 under the KIC Act with the aim of enhancing sovereign wealth and contributing to the development of the domestic financial industry. KIC is a pubic organization that is wholly mandated to manage assets entrusted by the Government and the Bank of Korea, and is striving to strengthen national wealth by investing public funds in the global market based on long-tem and diversified investment. Chin Young-wook, CEO & President of KIC said, “Under the turmoil of the global financial crisis, in which some prominent financial institutions faded away into the pages of history, KIC’s losses were mild compared to sovereign wealth funds and major asset management firms that adopted similar benchmarks as KIC. However, KIC nevertheless suffered valuation losses.”

KIC employs indirect investment methods, enabling the use of top quality external fund managers for appropriate asset class investments and strategies. KIC also seeks diverse ways to enhance returns through the cyclical process of drawing up long-term investment plans, allocating risk per asset class, selecting external fund managers, constructing portfolios, and monitoring and rebalancing. KIC started securities lending in May 2007 through external agents, restricting the borrowers to global financial institutions with good credit standing and those meeting KIC’s standards.

In order to foster financial professionals in Korea, which KIC greatly emphasizes, KIC have developed an asset management curriculum in cooperation with the KAIST Graduate School of Finance. Combining theory and practice, experts from KIC give lectures to future financial professionals during an eight-week program.

Since the collapse of Lehman Brothers in late 2008, which worsened a global economy already in turmoil, KIC continuously sought opportunities to expand its networks with SWFs in the Middle East and other parts of Asia through strategic alliances that would bring foreign funds to Korea. As a result, KIC signed MOUs with QIC in Australia and Khazanah Nasional Berhad in Malaysia last June, as well as the Kuwait Investment Authority (KIA), considered one of the leading SWFs in the Middle East, in July.

Through these MOUs, KIC seeks to strengthen alliances and opportunities for the comprehensive, mutual exchange of information. Chin Young-wook, KIC’s CEO has been seeking ways to co-invest and cooperate with SWFs in the Middle East and Asia since taking office last year, with the signing of these MOUs seen as the start of an influx of foreign investment.

KIC was entrusted with an additional US$3 billion by the Finance Ministry’s foreign exchange fund last July, with US$2 billion of it combining with the portfolio of the Finance Ministry’s existing fund and allocated in traditional assets such as bonds and stocks, and the remaining US$1 billion placed in the accounts of newly established alternative investments.

In November, KIC signed an MOU with Abu Dhabi Investment Authority (ADIA) for the purpose of seeking co-investment opportunities and the exchange of information and knowledge. ADIA is the world’s leading SWF, with assets estimated to total US$800 billion. The MOU between KIC and ADIA is viewed as an indication of ADIA’s increased interest in Korea.

However, some turned their attention to the possible side effects that KIC might encounter from Dubai’s recent request for moratorium, since Abu Dhabi is expected to come to the aid of Dubai. Some were concerned that it could affect KIC which had recently signed an MOU with ADIA. According to Lee Yong-gul, Vice Minister of the Finance Ministry, aiding Dubai is up to Abu Dhabi government, and that the MOU between KIC and ADIA is an agreement to cooperate, not an actual investment.