Investing assets entrusted by the government, Bank of Korea and public funds in the global financial market
Traditional investments, which include equities, fixed income and asset allocation, comprise 84.4% of KIC’s total portfolio, playing a central role in our pursuit of investment targets.
Since starting with fixed-income investments in 2006, we have expanded our asset classes into equity, inflation-linked bonds and commodities, and continuously increased our assets under management through investment returns and additional funding from clients. We have maintained well-balanced investment portfolios to preserve the purchasing power of Korea’s sovereign wealth, with an annualized return of 4.94% since inception.
In 2019, to strengthen the role of asset allocation at KIC, we created an asset allocation committee and started the Quarterly Asset Allocation Forum. The views and expertise gathered here are used to analyze financial markets, make decisions on asset allocation and enhance synergy among asset classes. For instance, our Asset Allocation Team analyzes future financial market trends and monitors the allocation weight of each asset class. The Equity, Quant and Fixed-Income teams concentrate on generating excess returns over benchmark indexes by implementing various strategies via fundamental and quantitative research.
KIC pursues a diversified and balanced portfolio across asset classes, regions and investment products to generate returns in a sustainable manner while ensuring that overall portfolio risk remains within appropriate levels.
KIC conducts global macroeconomic research covering major countries and regions, generating investment ideas to support effective tactical and strategic asset allocation. Through in-depth analyses of macroeconomic events and political/economic issues in key financial markets, we continue to strengthen our ability to respond to changes in the investment environment.
Through proactive discussions and organic collaboration among investment managers, we pursue an integrated approach to investment strategy and take a bird’s-eye view based on horizontal and vertical analyses instead of restricting ourselves to a specific region or asset class.
We also continue to grow our research capabilities for market-oriented macroeconomic analysis, to further build our portfolio and enhance investment returns.
KIC pursues excess returns through public equity investments worldwide. We identify listed companies that are undervalued relative to their long-term intrinsic value. Our goal is to achieve consistent and sustainable excess returns in accordance with investment guidelines.
We started managing our equity portfolio internally in 2008 with a passive investment strategy. We now use two investment strategies – fundamental and quantitative.
Our fundamental strategy for global equities is to generate excess returns by extensively analyzing the intrinsic value of companies and industries. In 2019, we started a long-term-concentrated strategy and are gradually increasing our exposure to achieve stable returns. We also manage region-focused portfolios through our equity investment managers in New York and London and through consistently strengthening our local management.
For our externally managed equity portfolio, we use strategy diversification to enhance performance and respond to market dynamics. We work to strengthen portfolio management in a balanced manner and work closely with our New York and London offices to address new strategies. We have adopted an ESG investment strategy and plan to grow our role as a responsible investor by expanding our ESG strategy.
On the quantitative side, our Quant Team has built a global portfolio management and trading system through benchmarking advanced systems overseas. The long-term goal is to develop KIC’s direct investment capabilities. We began applying a passive strategy in 2008 and later adopted a quantitative alpha (excess return) model through which investment decisions are made via algorithms based on mathematical and statistical models. We strive to implement an enhanced strategy that maximizes cost efficiency and improves riskadjusted returns.
The Quant Team also uses an independently developed management platform to respond to a global investment environment that is rapidly changing with the growth of market data, big data, diversification of alternative data sources, AI, machine learning and other technological advancements. We continue to strengthen this platform to integrate alternative data and AI, and to conduct research and development for new asset management strategies.
KIC invests in bonds and currencies from various countries and sectors, including sovereign bonds, bonds issued by state-run agencies, corporate bonds and securitized bonds. We manage risk factors inherent in the global fixed-income market, including credit and liquidity risk, and adhere to predetermined investment guidelines in our pursuit of optimal portfolio management.
For the directly invested fixed-income portfolio, we use regional and sector-specific expertise derived through collaboration between headquarters and our overseas branches to systematically manage a broad global portfolio, diversify risk and pursue stable excess returns.
In 2019, for this directly invested portfolio, we enhanced our credit analysis and investment capabilities, diversified macro strategies based on mid/long-term macroeconomic research and policy outlooks and developed sector allocation strategies. For the external fixed-income portfolio last year, we pursued style diversification strategies to achieve effective asset allocation.
More generally, we also established and operated a monitoring system that integrates direct and indirect investments to strategically manage our fixed-income portfolio and generate higher returns for the long-term.
KIC’s tactical asset allocation strategy is to flexibly adjust allocation levels among asset groups and the relative investment weight within each group based on global macroeconomic flows and short-term financial market trends to generate stable portfolio returns.
In 2019, KIC made strides toward more stable portfolio management. We developed quantitative indicators based on macroeconomic and financial market data. We strengthened an internal system for portfolio management and risk analysis. And we introduced a new strategy to reduce portfolio volatility.