Sovereign wealth fund will diversify

Korea’s $84.7 billion sovereign wealth fund plans to increase investments in real estate, private equity and infrastructure, according to its chairman.

Korea Investment Corp. will raise its allocation for alternative investments to 15 percent by year-end from 8 percent currently. It intends over the next five years to put 50 percent of its resources into assets other than stocks and bonds, Chairman Ahn Hong-chul told reporters on Wednesday at a seminar celebrating the corporation’s 10th anniversary. The fund invests only overseas; $76.7 billion, 90 percent of its net assets, was allocated to stocks and bonds in 2014, according to its annual report issued in May.

The company’s initiative comes as the Korean government plans to boost outbound investment to recycle its persistent current accounts surpluses and support a weaker currency. The Finance Ministry announced measures this week including tax benefits for funds buying global equities and looser regulations on insurers’ currency hedging and foreign debt purchases.

“I expect the returns to exceed 10 percent in the longer term if holdings of alternative assets rise above half of the portfolio,” said Ahn. He said that the target of 50 percent might be increased further if market conditions make that prudent.

Korea Investment put money in hedge funds, private equity and real estate last year to the tune of $6.8 billion, according to KIC’s annual report. The total return was 10 percent in 2014; that translates to 4 percent in dollar terms. Valued in won, the total return has been 11.1 percent annually over the past three years.

The Korean won weakened for a fourth straight quarter in the three months through June. It traded at 1,117.59 a dollar in Seoul, after falling to a three-month low of 1,127.55 on June 29, data compiled by Bloomberg show. A report Wednesday showed exports contracted for a sixth month in June.

Bloomberg