KIC plans alternatives push and domestic mandates

Korea Investment Corporation outlines some of its ambitions for 2010, which include finding ways to attract global managers to set up onshore.
KIC plans alternatives push and domestic mandates

Korea Investment Corporation (KIC) intends to increase its allocation to alternative investments in 2010, says Dong-ik Lee, head of KIC's alternative investments team.

The $30 billion sovereign-wealth fund (SWF) is also awaiting the passing of legislation in the National Assembly that would have it mandate allocations in domestic investments.

KIC's capital is expected to be expanded by $5 billion this year from the Ministry of Strategy and Finance, which has already seeded it with $13 billion. Bank of Korea, the country's central bank, is another sponsor, having contributed $17 billion.

A rising portion of new assets will go to alternative investments, including private equity, real estate, hedge funds and commodities. Of these, private equity is expected to receive the greatest attention.

KIC is open to strategic direct investments in alternative-investment manufacturers should an opportunity arise. It already has a stake in Bank of America Merrill Lynch (BoA Merrill).

Eventually, KIC's alternatives exposure will rise to 15-20% of total assets under management, says Lee. He is looking to add more investment professionals to his team, taking it from under 10 today to 15 in the near future. KIC is also looking to open offices in global financial centres such as London or New York, although the operational guidelines of such offices are still being worked out.

To date, most KIC activity has focused on long-only equities and bonds. The fund wants to improve its total return on investment by accessing alternatives. Besides the stake in BoA Merrill, it already has $1.5 billion invested in alternative products, including a mandate to Partners Group for secondary private equity, as well as others in real estate, distressed debt and leveraged loans.

Other SWFs seem to be increasingly eyeing alternatives, as they are seeking more training on this area, says Gay Huey Evans, vice-chairman of investment banking and investment management at Barclays Capital in London; she also heads up SWF coverage for the UK bank globally.

In addition, KIC is awaiting the passage of legislation that would direct it to invest a portion of its assets in domestic investments. The main purpose is to encourage global fund managers to do business onshore and bring more institutional depth to South Korea's capital markets.

Singapore's Government Investment Corporation has brought global asset managers to the Lion City by granting attractive mandates, albeit for global asset classes rather than Singaporean securities.

For the time being, the amounts KIC will allocate to domestic asset classes will be small, no more than $20 million for 2010 -- far too little to justify a global manager setting up operations there.

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