Korea Investment Corp., the Seoul-based sovereign wealth fund, should follow the path blazed by U.S. university endowments in allocating 50% or more of its portfolio to alternative investments, Chairman Hongchul “Hank” Ahn said Wednesday.
At a celebration marking the 10th anniversary of KIC's founding, Mr. Ahn — in a speech obtained by Pensions & Investments — said KIC's more immediate goal is to boost its alternatives allocation to 15% of assets by the end of 2015 from 8% the previous year.
Mr. Ahn said the KIC has $86 billion in assets, a modest advance from $84.7 billion at the end of 2014.
But the chairman said an anticipated “injection” of more money by Korea's Ministry of Finance should lift the sovereign wealth fund above $100 billion by the end of 2015.
KIC's latest annual report showed allocations of $3.2 billion, or 3.8% of assets to private equity as of year-end 2014; $1.9 billion, or 2.2%, to hedge funds; and $1.5 billion, or 1.8%, to real estate.
To achieve a target allocation of 15% to alternatives by the end of 2015, more than half of the Ministry of Finance’s 2015 injection would have to be made to alternative strategies.
Mr. Ahn couldn't immediately be reached for further comment.
Still, in his speech, Mr. Ahn focused on alternatives allocations as the key to meeting KIC's financial targets. “In order to achieve sustainable and higher returns on our investment, we have to increase the portion of alternative assets from the current 8% to 50% or higher down the road, like Yale and other U.S. university endowments and (the Canada Pension Plan Investment Board) and other American and Canadian pension plans,” he said.
In his speech, Mr. Ahn acknowledged some of the early challenges in the KIC's 10-year life, in particular its $2 billion investment in Merrill Lynch & Co. in January 2008, just as the global financial crisis that crippled a number of blue-chip U.S. investment banking giants was heating up.
He noted that as of today, KIC has been able to recover only 70% of its investment.
Still, he said KIC has risen “from the trauma” to deliver annualized returns of 7.4% over the past five years, and 11.1% over the past three years.