DEFINITION of Korea Investment Corporation
The Korea Investment Corporation (KIC) is a government-owned investment organization that manages the sovereign wealth fund for the Government of South Korea. The KIC was established by law in 2005. The KIC received initial deposits of $17 billion from the Bank of Korea and $3 billion from the Korean Ministry of Strategy and Finance. The KIC has approximately USD$122.3 billion in assets under management as of the end of 2018, according to the Sovereign Wealth Fund Institute's rankings.
BREAKING DOWN Korea Investment Corporation
The KIC is restricted to investing only in assets which fall under the guidelines provided by the Korea Investment Corporation Act. The KIC's objectives are to enhance Korea's sovereign wealth and to contribute to the development of the Korean financial industry. The KIC is governed by a steering committee consisting of nine members plus the chairman.
The fund invests in equities, fixed income, hedge funds, private equity, and real estate and infrastructure. KIC’s return on total assets in 2016 stood at 4.35%, with a five-year annualized return of 5.11% and annualized returns since inception of 3.34%, the fund reported. Regarding its investment philosophy, KIC said this: "KIC strives to increase returns while (1) minimizing the risks from individual markets and assets through portfolio diversification; and (2) exercising flexibility to seize investment opportunities.
Our investments started with traditional asset classes, including stocks and bonds. We broadened our investment scope to include inflation-linked bonds and commodities as well as private equity, real estate, hedge funds and individual investments. As part of our portfolio diversification, we have also increased our exposure to emerging markets since 2010.
Decisions related to strategic asset allocation are subject to deliberation by the Steering Committee. The investment management agreements signed between KIC and sponsors specify available asset classes and benchmark targets, and they serve as the basis for risk management and performance evaluation. KIC pursues benchmark returns (beta) by diversifying investments in the range of currencies and countries, as outlined in its investment management guidelines. We also strive to generate excess return over the benchmarks (alpha) through active management within an appropriate level of risk.
Regarding traditional assets, we manage risk using the ex-ante tracking error from active investing relative to the benchmark. If the weighting of an asset class deviates from a set range relative to the benchmark, adjustments are made so that exposure falls within the set range. The portfolio is rebalanced at pre-determined times to maintain policy weightings for each asset class."