"KIC Surpasses 200 Trillion KRW in Assets Under Management for the First Time" (Q&A)

by Park Soyeon

Published 02 Feb.2021 11:37(KST)

KIC President Choi Hee-nam is delivering a greeting at the New Year's press conference held online on the 2nd.

[Asia Economy Reporter Park So-yeon] The Korea Investment Corporation (KIC) has surpassed 200 trillion won in assets under management for the first time.

On the 2nd, Choi Hee-nam, President of KIC, held an online press conference to disclose KIC's investment performance in 2020 and to share the major business plans and management goals that KIC will focus on this year.

President Choi stated, "Since the start of investments in 2006, cumulative investment returns have reached 77.2 trillion won, and as of the end of last year, total assets under management exceeded $183.1 billion (approximately 205 trillion won)." He added, "Over the past two years, KIC earned a total of $42 billion (about 47 trillion won), achieving 60% of the cumulative investment returns in just two years."

Below is a Q&A session with Choi Hee-nam, President of KIC.

Q. The secret behind last year's double-digit returns

- There was an aspect of rising asset prices in the market. Due to COVID-19, expansionary monetary and fiscal policies increased market liquidity. KIC's relative performance was due to the investment team appropriately allocating the proportions of stocks and bonds according to market trends. We regularly rebalance, adjusting the stock-to-bond ratio to generate returns. In terms of advancing our management strategy, instead of following benchmarks for certain stock assets, we invested in stocks with high growth potential through long-term concentrated investments. This long-term focused investment strategy helped generate alpha. Introducing absolute return targets was also one of the reasons. Activating the asset allocation forum contributed to improving relative returns. Regarding whether we can sustain double-digit performance this year, the global economy is recovering as COVID-19 vaccinations expand. We expect a prolonged environment of low growth, low inflation, and low interest rates?the new normal?and anticipate a decline in long-term investment returns. Whether double-digit investment performance can be achieved remains to be seen. We will actively respond to market conditions to generate excess returns by asset class and plan to expand the proportion of alternative assets in the medium to long term.

Q. Changes in the global investment environment after vaccination

- The biggest factor for this year's economic growth and financial markets is how quickly COVID-19 vaccinations proceed. It varies by country, but we expect herd immunity to be formed around the second half of this year. The spread of new variants is considered a minor factor. With herd immunity, the global economy will normalize and employment will recover. We anticipate a return to the 'pre-COVID' economic situation.

Q. Progress and notable points regarding the amendment to the Korea Investment Corporation Act

- There seems to be some misunderstanding about the amendment to our Corporation Act, so I would like to clarify. Under the current Korea Investment Corporation Act, we are allowed to receive asset mandates from pension funds. The idea that this infringes on the market is a misunderstanding. There are 66 pension funds, including public pension funds such as the National Pension Service, Teachers' Pension, and Government Employees Pension. The law already permits us to receive mandates from these public pension funds, but we have not participated in the market. The notion that we are newly entering and infringing on market territory is a misunderstanding. What we want to do is cooperate with mutual aid associations and central organizations that have demand for overseas alternative investments. Since they lack internal personnel and experience, they have entrusted foreign asset managers like Blackstone. If KIC can take over, we will manage the assets and collaborate with domestic investment institutions through contracts, aiming for growth together rather than competition. Contrary to some misunderstandings, we have no intention to infringe on the market, nor is such a situation occurring. Increasing the investment returns of mutual aid associations means higher returns on domestic assets they have subscribed to, and as they gain experience in overseas alternative investments, their competitiveness will improve.

Q. Your evaluation of the controversy over short selling

- I am cautious about giving a personal opinion. The cause of this phenomenon is that a lot of liquidity has been injected into the market. As a result, individual investors have great interest and enthusiasm for asset markets. Due to technological advances, individual investment platforms have become very active. IT development has created venues for individual investors to communicate and collaborate. Previously information-deprived individuals now have democratized access to market information. Opinions of investment banks and experts, which greatly influenced financial markets in the past, were respected and dominated the market, but now the so-called 'ants' have increased influence. Market volatility has indeed expanded. However, from another perspective, the value of stocks in asset markets should reflect the intrinsic value of companies, but increased volatility can distort stock prices depending on liquidity. While democratization has been achieved in some respects, it is worth considering the other side as well.

Q. Progress on establishing the San Francisco office and future plans for venture and alternative investments

- In the second half of last year, we aimed to activate our venture technology investments through the San Francisco office. Due to COVID-19, the opening was postponed to the first half of this year. A venture investment expert is already in San Francisco preparing. From the second half of this year, we expect to participate in technology venture investments. Technology venture investment is a trend of the times. Digital transformation accelerated by COVID-19 means we cannot overlook technology-leading companies. Until last year, we discovered and invested in companies such as SNS chat firms and those with autonomous driving LiDAR technology. By opening the San Francisco office, we plan to participate in closed investments locally to discover better investment opportunities.

Q. Current status and future strategy of ESG investments

- KIC considers ESG factors in all investment decision-making processes. For traditional assets like stocks, we plan to introduce an exclusion strategy for companies with poor ESG ratings. The bond team is actively investing in green bonds as part of ESG investments. When selecting asset managers, we consider how they incorporate ESG policies into their investment guidelines. In alternative asset investments, we consider renewable energy and eco-friendly ratings in real estate investments and also factor these in when selecting alternative asset managers. We have been operating an ESG strategy fund for about a year and a half and plan to expand it further. ESG investment is an unavoidable global trend and serves as a risk management aspect in investing. It is a strategy to catch both risk management and returns.

Q. Additional mandates received last year from the Ministry of Economy and Finance and the Bank of Korea, and this year's mandate scale

- Last year, we received an additional mandate of $4 billion from the Ministry of Economy and Finance. It is too early to specify this year's mandate scale, but we expect continuous mandates from the Ministry and the Bank of Korea.

Q. Measures to secure a high-wage system for overseas talent acquisition

- As a public institution, there are general guidelines and limitations requiring consultation with the relevant departments. Nevertheless, to secure talented personnel and retain existing staff, it is necessary to strengthen a performance-based compensation system. Besides the performance pay system, we plan to introduce an excess return incentive system to reward investment staff who achieve outstanding returns. KIC aims to provide diverse investment experiences and training opportunities that cannot be found at other asset management firms.

Q. With the recent strength of tech stocks, investments in traditional industries such as steel, oil refining, and aviation are decreasing. What is your investment perspective on traditional industries?

- I believe the importance of heavy and chemical industries is declining. However, traditional industries are also changing through new innovations, for example, cars shifting from gasoline engines to electric vehicles. The biggest weakness of traditional industries is from an ESG perspective. It is true that the attractiveness of these assets in the market is decreasing from an investor's viewpoint. It is difficult to expand investments in traditional industries from a long-term perspective, but in the short term, there may be opportunities during the economic recovery process in terms of value. In the medium to long term, I hold a neutral view on traditional industries.