Posted : 2013-12-17 15:57
Updated : 2013-12-17 15:57

KIC chief to reform sovereign wealth fund

By Kim Tae-jong

Ahn Hong-chul
The new CEO of the state-run Korea Investment Corp. (KIC) said he will carry out reformative measures so that the state entity will be more faithful to its original mission as the manager of sovereign funds.

"The first task is to raise investment returns, which is now around 3.5 percent," CEO Ahn Hong-chul said in a phone interview with The Korea Times. "It is not low, but it is not high either. I will make KIC one of the best sovereign funds in the world."

To this end, he stressed the necessity of reformative remedies, one of which is to strengthen the fund's research capability and reduce its reliance on private research firms.

"The basic principle is that we need to make research-based investments. It's not right to make investments only based on what sellers say," he said. "We will have analysts in each sector such as automobiles and shipbuilders, but we also need specialists on countries where we make investments."

Ahn, who was a former commissioner of Invest Korea, a unit of the state-run Korea Trade-Investment Promotion Agency, took office on Dec. 12. He plans to complete the initial reform of the firm by the end of the year.

He also said he will drastically reduce the number of asset management firms in partnership with KIC to ensure the fund is better managed.

"We have too many asset management firms that each manages a small portion of our funds. But this doesn't mean the portfolio is diversified. If we choose only a few, they can each manage a large sum of money, and we can ask them for better terms such as lower commissions and more talented asset managers assigned to our funds," he said.

He also made it clear that sovereign funds should focus only on overseas investments, despite demands for its role in domestic investments.

"We are not allowed and should not be allowed to make investments in local stocks. It's not right to invest foreign exchange reserves into local stocks after exchanging them into won. Dollars exchanged into won and then invested in local stocks could cause inflation," he said.

He also said he will disclose investment results including investment returns because transparency is necessary in the operation of funds and asset management.

"Basically, KIC will focus on long-term investment, and we will make all the data available. I believe criticism is what we sometimes need to improve ourselves. Hiding is not a solution," he said.

His insight on the necessity of the reform at KIC seems to come from his relationship with the organization. Between 2005 and 2008, he served as an auditor of KIC.

The appointment came at a very sensitive time when state-owned enterprises have long been criticized for being heavily indebted and poorly managed. They are also criticized for questionable ethics, as their executives and employees have enjoyed excessive benefits and job security, even though their companies were in crisis.

Ahn stressed that benefits and incentives should be based on performance.

"I told employees that we should not care about small benefits that they can get but instead make efforts to enhance investment returns. If we do well, no one will question the incentives we will get. The result will tell everything," he said.

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