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KIC chief prioritizes risk management

The new chief of Korea’s sovereign wealth fund on Wednesday stressed risk control in an era of global financial volatility, saying its return on investment this year could remain negative after a near 3 percent loss last year.

“The outlook for our investment returns is not bright this year in light of the weakness in global markets, with the New York Stock Exchange down nearly 10 percent,” Eun Sung-soo, CEO of Korea Investment Corp. told reporters at its head office in Seoul. The former World Bank director and long-time Korean Finance Ministry official took charge of the $91.8 billion national wealth fund last month. 

Korea Investment Corp. CEO Eun Sung-soo speaks during a press conference at its head office in Seoul on Wednesday. (KIC)
Korea Investment Corp. CEO Eun Sung-soo speaks during a press conference at its head office in Seoul on Wednesday. (KIC)

“Still, in this global environment, we shouldn’t rush into riskier investments to shore up the return rate,” he said.

The KIC, which is obliged by law to buy foreign assets only, invests mostly in equities and bonds, with an increasing portfolio of alternative investments in private equity, hedge funds and real estate.

Under the previous CEO Ahn Hong-chul, the fund had pushed to increase its alternative asset portfolio to 25 percent by 2020. Eun, however, said he revised down the target to 20 percent. Alternatives currently account for 12.4 percent of the fund’s total investment.

“I agree with the direction, but we need to be more cautious. Alternative assets do have their own risks,” he said.

The fund’s investments in new energy-related assets, executed between 2010 and 2011 based on the projection of higher prices of oil, are logging heavy losses now, as crude prices tank, he said.

As for equities and bonds, Eun said the fund aims to outperform its benchmarks this year, but won’t be able to “beat the markets” amid recurring global stock market routs and abysmal interest rates.

“In 2015, we slightly outperformed our benchmarks, which all fell into negative territory,” he said, pointing to the MSCI all-country world stock index’s minus 2.36 percent performance and Barclays Capital global bond index’s minus 3.16 percent result in dollar terms in 2015. He revealed that its average return in 2015 will be around minus 3 percent, although the number is not final.

The fund’s most recent investments, announced earlier last month, were equity stake purchases in six U.S. five-star hotels, including Ritz Carlton Hotel in Manhattan and Four Seasons Hotel in San Francisco.

By Lee Sun-young (