Korea Investment Corporation’s (KIC) announcement of a new San Francisco office and its co-investment tie-up with shipbuilding company Hyundai Heavy Industries Group are part of a broader plan for it to identify and invest more into new technologies and start-ups, particularly via overseas alternative assets.

The sovereign wealth fund announced the opening of its new office on March 26, while two days earlier it revealed that its agreement with Hyundai Heavy Industries could see the two make up to W1 trillion ($884.84 million) in co-investments.

The new office will mark KIC’s fourth physical base overseas. It follows its establishment of a New York office (in 2010), then in London (2011) and Singapore (2017). Shin Yong-seon, head of KIC’s New York operation, will oversee and be responsible for the new San Francisco office, a KIC spokesman said.

“The San Francisco office will focus on venture capital and start-up investments," he added.

Choi Hee-nam

In a statement announcing the new office, KIC chief executive Choi Hee-nam said the asset owner’s “presence in San Francisco will deepen its network with global investors in Silicon Valley, proving pivotal to its successful investment in start-ups and new technologies and its long-term performance”.

Meanwhile, KIC’s co-investment agreement with Hyundai Heavy Industries aims to compete more effectively for future technologies across the world and to strengthen Korea’s national competitiveness.

The two parties plan to jointly invest up to W1 trillion into companies pursuing new technologies in areas such as ship autopilot, fuel cell and energy systems, artificial intelligence and robotics, and digital health care. Co-investments could include KIC and Hyundai Heavy Industries acquiring or merging existing investments with promising start-ups, KIC said in a statement announcing the link.

“We are currently overweight [in our investing bias for] new technologies and start-ups within the alternative asset universe, thus we will continue to seek for opportunities to source and execute quality deals going forward,” a KIC spokesman told AsianInvestor. He declined to comment on individual technology investments in its portfolio.

Further alliances or agreements may follow. KIC is continuing to explore potential co-investments and cooperation agreements with local companies and financial institutions across the world to help expand its investing presence, Choi said in his statement.  

TECH ALTERNATIVES

The sovereign wealth fund has a practical reason for raising its focus on technology start-ups in the US and elsewhere; they can offer big rewards.

KIC’s net asset value stood at $183.1 billion at the end of 2020, but it has a long-term goal to grow its assets to $400 billion by 2035, according to Global SWF.

The fund is currently on track, having reported that its net asset value rose by 13.7% in 2020 and 15.4% in 2019, which helped KIC to effectively double its assets in just five years. At that pace of growth, it should easily hit its 2035 target, said Global SWF in a report on the new office.

However, its ability to keep growing fast could hinge on its ability to successfully source long-term yields from sectors like tech in the private market space according, the association added.

At the end of 2020 KIC invested 15.3% of its portfolio into alternative assets. Its chief investment officer David Park said in a webinar hosted by AsianInvestor in January the fund wants to raise this to 20% by 2024 and to at least 25% by 2027.

Tech investments are likely to form an important part of this. However, today KIC’s tech-related investments are concentrated in public equities such as electronic carmaker Tesla, in which it has recently increased its position, said Global SWF.

The new San Francisco office should help KIC to invest more via private, venture capital-style investments, and allow it to more rapidly decide whether to participate in earlier-stage funding rounds. That would more quickly allow the asset owner to become embedded in the tech investment ecosystem, noted the report.

KIC first began to invest into startups in 2017, but has entrusted most of them to outside asset managers. As part of its plan to get a more hands-on role through direct investments it recently introduced a fast-track system that lets its chief investment officer invest up to $20 million in start-ups without requiring prior approval from the chief executive.

In addition to making more private tech investments, KIC may well seek out other alliances with other asset owners or organisations. In addition to its newly announced co-investment agreement with Hyundai Heavy Industries follows the fund teaming up with the National Agricultural Cooperation Federation, a state-affiliated agriculture services, banking and insurance provider, to create a private equity co-investment joint venture.

That agreement, which was announced in July 2020, marked KIC’s first such association with a local asset owner. it followed this in February by signing a memorandum of understanding with Woori Bank, also of Korea, to cooperate when making overseas alternative asset investments.