Korea Investment Corp Aims to Stray Away From Stocks, Bonds

The nation's $37 billion sovereign wealth fund is planning on making three or four strategic investments with other state funds next year.

(November 30, 2010) — The $37 billion Korea Investment Corp. (KIC) plans on forming joint investments with sovereign wealth funds in 2011, Bloomberg is reporting.

In an attempt to diversify away from traditional assets such as bonds and equities, the Seoul-based sovereign wealth fund is aiming on making up to four strategic investments next year. According to the news service, KIC posted a 7% to 8% return this year from stocks and bonds traded in public markets.

At the KIC, created in July 2005, public market investments consist of 90% of the portfolio. The fund is increasing its allocation to both public and non- traditional assets such as private equity and real estate in the developing world. Chief Investment Officer Scott Kalb told the news service that alternative assets have all been profitable. “..Our end goal there is to wind up having a diversified strategic portfolio in a variety of sectors and countries,” he said. He added that he aims on upping the fund’s alternatives allocation to 20% from 10%, an action that coincides with a recent survey by Deutsche Bank that points to a continued desire to focus on emerging markets and alternative strategies, such as long-short equity, macro funds and special situations, as opposed to US equity.

“I think it’s one of the first times we’ve gotten proof of institutional investors leaving US equities, with data that confirms that trend,” commented an industry observer. “Here, we see proof that the money is going toward alternatives and emerging markets. The realization has come from the fact that strategic diversification alone is not sufficient to protect in downturns.”

In recent news, the Korean fund has agreed to make a $100 million investment in a small privately held oilsands firm — Osum Oil Sands. “What we have is a large, developing resource that is a real growth area in the energy sector and it requires a significant amount of capital investment to develop,” said Steve Spence, president and CEO of Calgary-based Osum. The agreement gives the KIC’s board observer rights, the right to participate in future equity financings and the right to designate a nominee to the board of directors.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742