[INTERVIEW] Korea Investment Corp. optimistic about double-digit returns this year

Korea Investment Corp. (KIC) CEO Choi Hee-nam speaks during an interview with The Korea Times at the KIC headquarters in Seoul last Friday. / Korea Times photo by Shim Hyun-chul

Sovereign wealth fund CEO focusing on ESG, financial hub vision

By Park Jae-hyuk

"So far, so good" was the response from the head of the nation's sovereign wealth fund to the question about its earnings amid the unprecedented COVID-19 pandemic throughout this year.

Choi Hee-nam, who has led the Korea Investment Corp. (KIC) since March 2018, told The Korea Times in a recent interview that the rate of return on his company's investments this year may hit 10 percent, thanks to the global stock market rally resulting from ample liquidity.

"Our financial record for this year has yet to be audited, but the return rate has surpassed 9 percent so far," he said. "If the S&P 500 continues to rise, the return rate will be able to reach 10 percent."

The fact that there is little likelihood of the United States changing the direction of its monetary policy until the end of this year is also favorable to the KIC, which suffered a sudden decline in earnings in December 2018, following the U.S. Fed's interest rate hike. Back then, its rate of return was -3.66 percent.

If the KIC accomplishes the goal of posting a 10 percent rate of return this year, the company will be able to record double-digit returns for two consecutive years. The institution, which managed assets worth $157.3 billion as of the end of 2019, earned $20.2 billion last year from its investments, at a 15.39 percent rate of return.

The CEO, who is also known as an international finance expert from his career as an executive at the World Bank and the International Monetary Fund (IMF), however, warned of a "turning point" in the global financial market, which will likely come next year as a result of the development of COVID-19 vaccines that will bring an economic recovery.

"The potential interest rate hike after an economic recovery is expected to give a shock to the financial market," he said.

The KIC chief mentioned more alternative investments as key countermeasure against tougher market conditions. He said the institution will gradually focus more on alternative assets, such as real estate, infrastructure and private equity funds, compared to conventional assets, such as stocks and bonds.

ESG for better profitability

Another major asset management strategy he mentioned was making investments while taking into account environmental, social and governance (ESG) criteria. According to the CEO, not only has such a strategy enabled better risk management, but it has also helped the KIC improve its profitability.

"Our ESG fund's return rate is higher than the rate of return on our investments following the MSCI All Country World Index," the CEO said.

In November, the KIC also joined the One Planet Sovereign Wealth Fund (OPSWF), which was established in 2017 to cope with climate change. On the day it joined the group, the KIC became the nation's first public institutional investor to declare its support for the Task Force on Climate-related Financial Disclosures (TCFD), which the Financial Stability Board created in 2015 to improve and increase reporting of climate-related financial information.

With the aim of becoming a public institution that makes responsible investments, Choi said the KIC seeks to learn from institutional investors and pension funds in Nordic countries, which have used the best practices in investments regarding ESG principles, as the founding members of the OPSWF.

Attracting foreign asset managers

Apart from his role as the leader of the nation's sovereign wealth fund, the KIC CEO is also serving as the ambassador for financial cooperation after he was appointed to the position earlier last month to handle the task of supporting the government's diplomatic activities for its financial hub vision.

The new ambassador is particularly making efforts to convince global asset management companies running their Asia headquarters in Hong Kong to open their regional offices here, given that some of them have shown interest in the Korean market with its large size of accumulated assets.

He noted Korea can be more attractive to foreign financial firms, if the government eases regulations that are isolated from the global trend. He said the country's fluency in English and its infrastructure have already improved enough for it to become a financial hub.

Silicon Valley project

Choi's term as ambassador lasts until November next year, but his term as the KIC CEO will end in March next year.

Given that none of his predecessors served another term, his final task as the head of the sovereign wealth fund will likely be the opening of the San Francisco office, which was delayed due to the pandemic. The KIC had sought to open the office in the third quarter of this year to enhance its competitive advantage through investments in high-tech Silicon Valley startups.

According to the CEO, the new U.S. office will open in March next year, after the KIC signs a lease in December and its employee specializing in tech and startups get visas. When the office opens, the KIC is expected to look for new sources of income with better access to information about promising startups in Silicon Valley.