Korea Investment Corporation plans to co-invest with local asset managers and securities firms to invest at least $2 billion in foreign infrastructure, in a trial move for the $90 billion sovereign wealth fund.
This is part of its plan to double its use of domestic financial firms – admittedly from a very low base – and help boost the Korean economy in general.
KIC’s investment via external managers stands at about one-third of its total AUM, yet so far it has allocated only 0.7% of its total AUM to local firms. The fund would at least double that exposure in the near future, said Eun Sung-Soo, KIC’s new chief executive and president.
The chosen partners will make equity capital investments in overseas infrastructure projects with KIC, in collaboration with domestic construction companies. The SWF may also seek foreign asset managers to participate if Korean companies are reluctant to make equity investments. (There is, for instance, some uncertainty among local financial companies over how profit and risk will be shared with local construction companies.)
The fund will help both Korean financial companies to become global investment banking operations and construction firms to win international business, noted Eun.
KIC will also co-invest with local second-tier pension funds in foreign infrastructure, he said, and will hand more business to local law and accounting firms.
A local financial expert told AsianInvestor that such efforts were part of KIC’s mission to help domestic players become more globalised, while the chief investment officer of a local pension fund said such moves would provide a more positive atmosphere for the Korean investment industry.
The infrastructure initiative is part of KIC’s plan to raise its alternatives allocation from 12.4% to 20% of AUM by 2020. That means its exposure would stand at $40 billion by 2020 if its AUM were to reach the target of $200 billion by then.
Eun also reportedly said in February that the environment of low interest rates and low returns – thanks to losses on KIC’s traditional assets due to bond and stock market downturns last year – had increased the need to expand the spectrum of alternative investments.
Continuing the infrastructure theme, KIC is a member of a group organised by the Ministry of Strategy and Finance to provide financial support for Korean companies to export plants to Iran and support joint projects with Iran.
Moreover, at a summit between South Korea and Iran on May 2, Korean president Park Geun-hye announced a financial support package potentially worth $25 billion for infrastructure investments in Iran.
KIC has also in the past worked with the likes of Beijing-based Bank of China and Abu Dhabi state investor Mubadala Development Company to set up co-investment infrastructure funds.