This Post considers the Korea Investment Corporation.
It is organized in corporate form and its initial investment consisted of a transfer of sovereign reserves from the Bank of Korea (Ibid). The articles of incorporation may be accessed HERE. Its vision is "be the premier sovereign fund for future generations;" Its mission is to "Increase national wealth by maximizing risk-adjusted returns - Invest for the benefit of future generations - Contribute to the development of Korea's financial industry." (Korea Investment Corporation Overview ; KIC In Search of Sustainable Alpha, 2012 Annual Report, p. 2). But its core objective appears to be to project Korean economic power as a financial center: "KIC will also nurture finance professionals with global experience who can play an important role in advancing the domestic financial sector. By spearheading advances in asset management, KIC will contribute to shaping Korea into a Northeast Asian financial hub." (KIC FAQ. No. 19).
The Steering Committee is the highest decision-making body of KIC. It is currently composed of nine members, including the committee chairman. Committee members include six professionals from the private sector, the CEO of KIC and the representatives of institutions that have entrusted assets exceeding one trillion won, namely the Minister of Strategy and Finance and the Governor of the Bank of Korea. Those six private sector members, who are nominated by the Civil Member Candidate Nomination Committee and appointed by the President of the Republic of Korea, serve two-year terms. The chairman of the Steering Committee is elected from among the civil members. (KIC Steering Committee)
Officers/Employees shall comply with international conventions and regulations related to investment and trade, such as Anti-Bribe Convention on International Commercial Transactions, respect the laws and cultures of, and contribute to the economic development of the local countries. (KIC Code of Ethics)
The KIC investment objective is to generate consistent and sustainable returns in excess of the benchmark within an appropriate level of risk. Under the principle of prudent and responsible investment, KIC strives to increase returns while (1) minimizing the risks from individual markets and assets through portfolio diversification; and (2) exercising flexibility to seize investment opportunities.
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Initially, our investments started with traditional asset classes such as stocks and bonds. However, the scope of investment at KIC has been broadened to include inflation-linked bonds and commodities as well as private equity, real estate, hedge funds and special investments. In addition, as part of portfolio diversification, we have increased our exposure to emerging markets since 2010.
Decisions related to strategic asset allocation are subject to deliberation by the Steering Committee, the highest-decision making body of KIC. The investment management agreements signed between KIC and sponsors specify eligible asset classes and benchmark targets, and they serve as the basis for risk management and performance evaluation. (KIC Investment Policies)
KIC exercises its voting rights as a shareholder more discretely than either the Australian or Norwegian Funds. "KIC adheres to the basic principles of acting in good faith and enhancing shareholder value in the long term when exercising voting rights. Under these basic principles, KIC has drawn up related procedures to ensure voting rights are exercised appropriately." (KIC In Search of Sustainable Alpha, 2012 Annual Report, p. 27). But the KIC Investment Policy Statement (2011) provides only that "The Corporation shall act as a prudent manager when exercising the voting rights.
KIC has been carrying out community service activities to fulfill its social responsibilities as a public corporation. Also, participation in various clubs and volunteering helps to create a vibrant and constructive organization culture. Fees received for lectures given at outside agencies and seminars are donated to social welfare organizations, and employees make visits and present donations on a monthly basis to an orphanage under the lead of the KIC Volunteer Group.
Additionally, KIC senior executives and employees participate in a program to deliver coal briquettes to low-income households every year. In 2012 KIC forged an agreement with the Korean Open Doctors Society to support volunteering activities aimed at people with limited medical access in Korea and abroad. (KIC In Search of Sustainable Alpha, 2012 Annual Report, p. 30).
The Russian Direct Investment Fund (RDIF) and the Korea Investment Corporation (KIC) have signed a memorandum to form the Russian-Korean Investment Platform. The signing ceremony took place in the presence of Russian President, Vladimir Putin, and Korean President, Park Geun-hye, in Seoul.
The investment platform will focus on cross-border investments which fulfill Russian-Korean strategic interests. The parties intend to invest in companies and projects that facilitate trade and encourage investment cooperation between the two countries. (RDIF and KIC launch Russian-Korean Investment Platform, Russian Direct Investment Fund, 13 Nov. 2013).
The KIC, then, serves as an investment vehicle for the purpose of wealth enhancement and strategic development of key sectors. It is in a sense a future fund, but one operated for the purpose of enhancing the aggregate economic potential of Korea. Among the sectors to be developed through the KIC is the financial sector itself.
In December 2003, the “Northeast Asian Financial Hub Strategy” was adopted as a national policy initiative during a meeting chaired by the President of the Republic of Korea. The strategy called for the transformation of Korea into a regional financial hub led by the asset management industry. As a part of this strategy, the Korea Investment Corporation (KIC) Act was passed in March 2005 and KIC was officially launched on July 1, 2005. . . . With an abundance of financial assets and the related legal and regulatory framework, Korea offers a favorable environment for the asset management sector. At the same time, demand for asset management services is growing due to low interest rates and an aging society. The founding of KIC sets the stage for the growth of asset management in Korea. (KIC FAQ. No. 19)Yet most of KIC's investments are outside Korea, principally Russia, the United States, Brazil, Canada, China and India (KIC 2012 Annual Report). It is thus operated to use markets rather than to manage them and to serve as a fund through which the state can manage the direction of economic development within Korea. More interesting, though, is the new strategy of combining KIC with SWF partners for joint investment. The KOREA-Russia deal, in this context is one ot watch.