Korea Investment Corp., the nation's sovereign wealth fund, plans to spend as much as $10 billion to triple its allocation to alternative assets, diversifying its portfolio to smooth the fund's returns.
The KIC wants to increase holdings of private equity, real estate and hedge funds to as much as 20% of its portfolio by 2016 from 6.1% at the end of 2012, its chief investment officer said.
“We are going to spend between $5 billion and $10 billion on alternative assets over the next three years,” Lee Dong Ik said in an interview Wednesday. “We like to have a balanced portfolio in terms of strategies and regions.”
Founded in 2005 to invest some of the nation's foreign-exchange reserves offshore, KIC initially bought bonds before adding equities in 2007. Two years later, it expanded to distressed debt, real estate and private equity. At the end of 2012, KIC managed $57 billion.
KIC's investments in hedge funds and real estate have yielded an average 7% annually since inception, according to the 2012 annual report published in May. Private equity investments returned 11%.
The chief investment officer said alternative investments would be evenly spread. “It may be 40% private equity, 30% real estate and 30% hedge funds,” he said.