Law to add $5 billion to sovereign fund

The Korean government plans to beef up the national sovereign fund by $5 billion to bring its assets under management to nearly $34 billion next year, according to officials at the Finance Ministry.

The officials said the National Assembly’s Strategy & Finance Committee had approved legislation to add $5 billion to the sovereign fund, known as Korea Investment Corp., taking its assets from $28.9 billion to $33.9 billion.

The asset manager is also planning to take a more aggressive posture in its investments next year, expanding its holdings of previously less-explored products including commodities, real estate, hedge funds and financial derivatives.

The sovereign fund has for years invested a large portion of its assets in bonds or stocks only.

“We are considering the idea of investing more aggressively in such alternative investments,” said one KIC official who declined to be named. “We are thinking of expanding such alternative investments to up to 20 percent of our total investment.”

Sovereign funds in other countries, among them China Investment Corp. have racked up handsome returns after taking a bullish posture during the latest financial crisis, when most investors tended to hunker down, the official said.

“Now KIC also needs to be more aggressive,” he said.

In one such effort, the corporation is expected to take part in more joint investment projects with sovereign funds of other nations, including China and Singapore.

“We expect to establish several joint investment projects with other sovereign funds like CIC,” said the official.

The KIC’s $24.8 billion investment portfolio posted a return of 20 percent from January to November this year, beating its benchmark return goal by 1.4 percentage point and setting its total accumulated return since 2007 at 12 percent.

Its $2 billion investment in Merrill Lynch, which predated the financial crisis, posted a return of minus 43 percent as of November this year, improving from a minus 80.6 percent return as of February.

By Lee Sang-ryeul [hawon@joongang.co.kr]