Investing assets entrusted by the government, Bank of Korea and public funds in the global financial market
Traditional investments, which make up the core of KIC’s investment portfolio, consist of equities, fixed income and asset allocation. They play a pivotal role in achieving KIC’s investment objectives.
Traditional investments, including equities and fixed income, account for 77.2% of KIC’s total portfolio, playing a central role in our pursuit of investment targets.
We started with fixed-income investments in 2006 and expanded our asset classes to include equities, inflation-linked bonds and more. The annualized return for KIC’s traditional investments as of 2022 was 4.06%.
As the scope and scale of our investments grew, so did the need to adjust our asset class weights and to pursue companywide risk management. Since 2019, our investment managers have been regularly engaging in in-depth discussions through KIC’s Asset Allocation Forum, the results of which are actively taken into account in our investment decision-making.
Each investment group aims to generate excess returns through using a wide range of strategies. The Asset Allocation Group derives the expected rate of return for each asset class based on the financial market outlook and determines optimum allocations in consideration of companywide risk levels, contributing to the achievement of KIC’s absolute return targets.
Through various functions, KIC maximizes the effectiveness of investment diversification and maintains portfolio-wide risk at appropriate levels, which helps generate returns in a sustainable manner.
KIC analyzes global macroeconomic research from various perspectives to ensure effective asset allocation. Through considering the economic structures and political and social issues of major countries, we lay the groundwork to actively respond to changes in the investment landscape. We use the analysis for short-term market responses and to build our portfolio in the mid- and long-term.
Our regional managers also actively communicate and consult with one another, which allows for the mutual verification of investment ideas. We build a strategic portfolio based on the global economic and market outlook derived through this process, contributing to long-term returns.
KIC conducts research on equities in developed and emerging countries and makes long-term investments in companies that are undervalued relative to their long-term intrinsic value. While focusing on generating excess returns in accordance with investment guidelines, we manage our portfolios in consideration of various risk factors, such as changes in the macroeconomic environment.
More specifically, we pursue stable and sustainable returns through building a balanced portfolio of fundamental and quantitative strategies and of direct and indirect investments.
The fundamental strategies for direct equity management of KIC’s Equity Investment & Strategy Group and the Global Equity Investment Group aim to achieve excess returns through analyses of the intrinsic value of individual companies. Formed in 2022, the Global Equity Investment Group has strengthened KIC’s sector-investing system with the global strategies already in place to help drive stable long-term performance. Our New York and London offices as well as headquarters run regionspecific portfolios for the locally focused global investment strategy.
The indirect equity investments of the Equity Investment & Strategy Group seek to generate excess returns by making diversified investments based on various investment philosophies. The group maintains portfolio diversity and balance while focusing on long-term investments to achieve excellent performance. It also strengthens KIC’s role as an institutional investor by incorporating ESG considerations into the portfolio.
For quantitative investments, the Quant Equity Investment Group works to develop KIC’s direct investment capabilities long-term. It has built a global portfolio management and trading system through benchmarking advanced systems overseas. After starting with a passive strategy in 2008, the group adopted a quantitative alpha (excess return) model through which investment decisions are made using algorithms based on mathematical and statistical models. It uses an enhanced strategy to improve cost efficiency and returns.
To proactively respond to changes in the global investment landscape, the group is also building a unique management platform based on big data and machine-learning technologies, in addition to reinforcing ESG and thematic strategies. The group broadly applies advanced strategies expected to have diversification effects. It also runs a quota program that entrusts domestic securities firms with overseas stock trading orders as part of a continued effort to induce growth in the domestic finance industry.
KIC invests in sovereign bonds, government-related bonds, corporate bonds and securitized bonds in various countries and currencies. The aim is balanced portfolio management that effectively uses market, credit and liquidity risks by integrating bottom-up investments based on specialized investment capabilities by region and sector and top-down investments based on comprehensive judgments of the global market. We also seize diverse investment opportunities in the global fixed-income market based on collaborations between headquarters and overseas offices and the synergies generated from the integrated management of direct and indirect investments.
In response to rising volatility in the financial markets, the Fixed-Income Group has focused on achieving stability for the directly invested fixed-income portfolio through regionand sector-based asset allocation strategies. For the stable generation of excess returns over the medium to long term, we continue to pursue new excess return sources by introducing new investment products and techniques and developing and using analytical models.
To strengthen its external fixed-income portfolio, the group has used new strategies that take advantage of various investment opportunities in the fixed-income market, pursued active management, selected new asset managers and carried out rebalancing. It prepares for market changes over the medium to long term by continually monitoring the market and enhancing its risk-analysis capabilities.
KIC has set up a process to establish and implement tactical asset allocation strategies for the entire traditional asset portfolio. Tactical asset allocation aims to adjust asset class weights through spot allocation, hedging strategies and alpha strategies and to respond to short-term market volatility while managing total return volatility across traditional assets and improving returns.
As financial market volatility increased in 2022, KIC continued to develop quantitative analysis indicators based on scenario, economic and market data analysis and strengthened our portfolio management and risk analysis systems.