Korea’s KIC targets 20% alternatives allocation

"We'll have to embrace the lower return expectation from traditional assets and that will continue for a considerable period," Heung-Sik Choo, KIC's CIO, told Bloomberg. "Considering such an environment, expanding into alternatives is one of the most efficient way to protect yield in the mid-to-longer term."

This isn't so much a new strategy for the sovereign wealth fund as the continuation of an existing one. Dong-Ik Lee, who stepped down as CIO in January, said last year that he wanted the alternatives allocation to triple from the 6.1% figure for the end of 2012. The allocation now stands at around 10%.

Choo said that KIC's alternative asset management department currently has about 20 members and there are plans to hire more.

Set up in 2005, KIC initially bought bonds before adding equities to its portfolio in 2007. Two years later, it expanded to distressed debt, real estate and private equity. According to its 2012 annual report, private equity investments have yielded an average 11% annually, while its investments in hedge funds and real estate have returned 7%.

KIC had around $57 billion of assets under management as of the end of 2012, with 45% in equities, 39% in bonds and around 10% percent mainly in cash, inflation-linked bonds and its stake in Bank of America.

KIC follows a number of other state funds in increasing its exposure to alternative assets. Singapore's Temasek Holdings has nearly doubled its holdings of unlisted assets to 27% of its portfolio over the past eight years, while Australia's Future Fund increased its proportion of private equity and real estate assets to 13% from 6.3% in the three years through March 2013.

Choo's appointment in March followed that of Hong-Chul Ahn as CEO. Lee served as interim CEO after the resignation of former head Chong-Suk Choi.

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• Topics
• LPs
• North Asia
• Sovereign wealth fund
• KIC
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