The new head of Korean sovereign fund KIC has embarked on the largest restructuring in the institution’s history to align it with international best practice as it strives to improve returns.
Ahn ‘Hank’ Hong-Chul, named chief executive at $72 billion Korea Investment Corporation last December, has announced plans to establish a research centre within the investment management division at its Seoul headquarters.
He says the centre’s establishment follows examples set by major sovereign wealth funds such as Norway’s Norges Bank Investment Management and Singapore’s GIC, which house research at the heart of their investment processes.
The stated goal is to help KIC pursue a long-term, value-driven investment style similar to that of Warren Buffett, chairman and CEO of Berkshire Hathaway.
“This move by KIC is very significant in that it has not had such a drastic degree of internal restructuring before,” one industry source says of the institution founded in 2006.
The research centre will be split into two sections, one interpreting global macroeconomic data, interest rates and currency trends, and the other industrial data. It is expected to staff the unit with up to 20 analysts, feeding research into KIC’s allocation strategies.
This is designed to provide market views independent of KIC’s portfolio management team. In particular it is understood the new centre will prioritise analysis of alternative investments.
Ahn has said the centre is designed to foster internal expertise at KIC, securing a more sustainable future for the institution. What this means for external managers remains unclear, but there’s no indication that KIC plans to reduce outsourcing. At present it outsources 30% of assets and invests 70% directly.
Moreover, Ahn has set a goal to increase assets under management by more than 50% to $100 billion, without giving a timeframe. The institution has 80 investment staff at present.
KIC was named institutional investor of the year at AsianInvestor's 2013 Korea awards. The sovereign fund reported an 11.8% return on investment in what was a tough environment in 2012 (66 basis points over benchmark), primarily from global equity, fixed income and asset allocation.
KIC has announced plans to reduce its fixed income allocation, while increasing in equities, real estate and private equity funds. It will reportedly seek to near-quadruple its alternatives exposure to 30% of AUM, although again no timeframe was given. At present the fund has 49% of its assets invested in equities, 34% in fixed income and 8% in alternatives, among the major asset classes.
The establishment of the research centre has necessitated an internal reshuffle. Appointed to head the centre is Rhee Kee-Hong, who had been serving as CIO since Lee Dong-ik stepped down late last year. Lee had 15 months left to run on his three-year contract, and the speculation is he resigned to allow Ahn to build KIC with a fresh slate.
Late last month KIC said it had reorganised its structure to create four departments within investment management: equity, fixed income, alternatives and risk management.
Jay Huh, previously director of KIC’s private markets group in New York, takes charge of alternatives. This is a position of increasing importance, and the consolidated team he now heads covers infrastructure, real estate, hedge funds and private equity funds. Brian Choi has taken over from Jay as chief representative of KIC’s US operations.
Meanwhile, Kim Doo-Young has been promoted to head of fixed income, having previously been a member of that team. He replaces Lee Seung-hwan, who takes charge of KIC’s communications team.
Kim Sang-Joon remains head of KIC’s equity department, while Cho Sunshin is promoted to head of its risk management team.
KIC is in the process of recruiting a CIO following Lee’s resignation. The deadline for receipt of applications was February 4, and it is understood a number of Korean nationals with international asset management experience have applied.
Criteria for the post including having more than 10 years’ investment experience with local or global entities running more than $2 billion in AUM.