Investing assets entrusted by the government, Bank of Korea and public funds in the global financial market
The Korea Investment Corporation was entrusted with USD 102.6 billion following its establishment in 2005, and has a net asset value of USD 131.6 billion as of the end of 2018.
Following a principle of diversification, we manage a portfolio that comprises 83.6% traditional assets and 16.4% alternative assets, including hedge funds, private equity, real estate and infrastructure. With a strategy of gradually expanding our alternative assets, which have a low correlation with traditional assets and can capture illiquid risk premiums that tend to pursue relatively higher returns, we increased the proportion of alternative investments in our portfolio from 14.4% at the end of 2017 to 16.4% in 2018.
Due to a challenging investment environment in 2018 in which prices for equities, bonds, commodities and other assets fell simultaneously, KIC recorded a return on total assets of -3.66%, down from the 16.42% return on total assets in 2017. Since our establishment, we have been expanding our investment competencies based on a principle of long-term, diversified investing. Despite the global financial crisis and low interest rates, we achieved an annualized return of 3.38% over the past five years and an annualized return since inception of 3.76%.
Challenges in the global financial market last year included tight monetary policy enacted by the U.S. Federal Reserve, trade conflicts between major economies and worries about slowed global economic growth. As a result, the MSCI All Country World Index (equities) declined by 9.41% and the Bloomberg Barclays Capital Global Aggregate Index (bonds) fell by 1.20%. In the commodities market, the prices of most assets fell due to the expected drop in demand caused by the global economic slump. As a result, the Dow Jones Commodity Index fell by 8.91%.
(USD billion, %)
|Alternative assets||Hedge funds||4.7||3.6|
|Real estate · infrastructure||8.8||6.7|
KIC’s return on total assets in 2018 stood at -3.66%, with a five-year annualized return of 3.38% and an annualized return since inception of 3.76%.
The return on traditional assets in 2018 was -5.64%, -81 bps compared to the benchmark.
|Category||2014||2015||2016||2017||2018||Annualized return for the past five years||Annualized return since inception|
Annualized return since inception: 7.40%
* Total includes commodities (categorized as traditional assets since April 2011)
|Equities||Morgan Stanley Capital International All Country World Index ex Korea (unhedged)|
|Fixed income||Bloomberg Barclays Global Aggregate Index ex KRW ex Korea (unhedged)|
|Commodities||S&P GSCI Light Energy Total Return Commodity Index|
|Inflation-linked bonds||Bloomberg Barclays Global Inflation-linked Bond Index|
|Cash||ICE BofA Merrill Lynch 3-Month US Treasury Bill|
|Private equity||Morgan Stanley Capital International All Country World Index ex Korea (unhedged) + 2%, 3 months lagged|
|Real estate · infrastructure||G7 inflation rate + 4%, 3 months lagged|
|Hedge funds||BofA Merrill Lynch 3-Month U.S. Treasury Bill + 3.5%, 1 month lagged|