KIC urged to boost partnership with asset managers

By Lee Kyung-min

The Korea Investment Corp. (KIC) should strengthen its partnerships with competent global asset management companies to improve investment returns, experts said Tuesday.

Various performance-based incentives should be strengthened to help asset managers stay motivated, and a consultancy review could be an option to boost organizational efficiency, they added.

The recommendations come after the sovereign wealth fund underperformed its counterparts from advanced economies over the past five years.

Data from Rep. Kim Song-sik of the minor opposition Bareunmirae Party showed the KIC's return on investment was minus 3.7 percent in 2018, second to last out of seven global wealth funds.

Of them, Temasek Holdings of Singapore and Alaska Permanent Fund of the U.S. had a return rate of 12.2 percent and 10.7 percent in 2018, respectively.

Australian Future Fund had 9.3 percent, Hong Kong Monetary Authority Investment Portfolio, 0.3 percent.

Norges Bank Investment Management of Norway had a negative return of 6.1 percent while China Investment Corp., had a negative return of 2.4 percent in the same period.

Measured by a five-year average between 2014 and 2018, the KIC still came second to last with a return rate of 3.4 percent, after the Hong Kong Monetary Authority Investment Portfolio (2.1).

The remaining five funds had a return rate of between 4.5 and 10.4 percent.

“Since KIC is a sovereign wealth fund, it cannot invest aggressively,” Sung Tae-yoon, an economist at Yonsei University, said.

“For better returns, the fund can reference competent asset management from around the world.”

The top-performing pool of talent at the KIC should reflect whether they are becoming complacent as a state-run entity where playing safe is more of a dominant norm over taking risks, according to Yun Chang-hyun, an economist at the University of Seoul, said.

“Making choices and moving fast should be the top qualities for asset managers to maximize their capabilities, but outside influence ― notably from the government ― could sap their motivation. A review from a consultancy does not seem to be too bad a choice to help boost organizational vibrancy.”

Park Chong-hoon, chief economist at SC First Bank, said the KIC can take only so much risk, given the funds are from the central bank and the finance ministry.

“The KIC is run with the country's foreign reserve, a fund that should be ready to use at all times including in the event of an emergency. It is understandable that its investment portfolio priorities are safety over all else,” he said.