Promotion of 'Public Corporation Act Amendment' for Fund Outsourcing
Foundation for Growth of Global Top 10 Sovereign Wealth Funds
"Industry Domain Invasion" Private Asset Managers Protest
[Asia Economy reporters Jihwan Park and Minji Lee] The Korea Investment Corporation (KIC), a sovereign wealth fund that manages foreign currency funds entrusted by the government and the Bank of Korea, is planning to pool funds from major domestic mutual aid associations and mutual financial cooperatives to invest in overseas alternative assets. Mutual aid associations and others will have expanded opportunities to invest in higher-quality overseas assets, while KIC will lay the groundwork to grow into one of the world's top 10 sovereign wealth funds by expanding its assets under management, creating a 'win-win' strategy.
According to the financial investment industry on the 18th, KIC plans to submit a bill to the National Assembly's Strategy and Finance Committee (SFC) this year to amend the Korea Investment Corporation Act to allow mutual aid associations and others to entrust their funds to KIC.
Under the current KIC Act, various mutual aid associations and mutual financial cooperatives cannot entrust overseas investment asset management to KIC. This is because the entities allowed to entrust funds to KIC are limited to the government (Ministry of Economy and Finance), the Bank of Korea, and fund management entities under the Framework Act on the Management of Public Funds.
Until now, mutual aid associations and mutual financial cooperatives, which have invested overseas through domestic asset managers or local brokers, are expected to gain opportunities to choose from a wider range of investment destinations overseas. Since KIC manages the country's foreign exchange reserves, it is regarded as having superior overseas networks and deal sourcing capabilities compared to any domestic institutional investor. Notably, KIC is also establishing new offices in San Francisco following New York, London, and Singapore, which strengthens its overseas investment bases.
A senior official from a mutual financial cooperative pointed out, "When domestic asset managers go overseas to find investment opportunities directly, they often participate only in deals that were sidelined locally due to lack of economies of scale or infrastructure, and many such investments have led to defaults." The official explained, "KIC has local offices, which provides an advantage in continuous local management of investment projects."
KIC expects that if this bill passes, it will accelerate the achievement of its mid-to-long-term goal of expanding assets under management from $150 billion (approximately 180 trillion KRW) in 2035 to $400 billion (approximately 480 trillion KRW) under the 'SGV2035' vision. According to the asset management industry, as of the end of last year, the combined assets under management of six major domestic mutual aid associations?including those for teachers, the Yellow Umbrella Fund, administrative workers, military personnel, police, and scientists?amounted to 80 trillion KRW.
Adding funds from smaller mutual aid associations such as the Local Finance Mutual Aid Association and the NongHyup Mutual Financial Cooperative (110 trillion KRW) pushes the total assets under management well beyond 200 trillion KRW. An investment industry insider said, "Even overseas sovereign wealth funds like the Queensland Investment Corporation (QIC) emphasize the importance of expanding entrusted institutions by managing private-sector funds such as those from mutual aid associations."
However, opposition from private asset management firms is strong. The asset management industry has voiced dissatisfaction with the proposed amendment to the KIC Act. Asset managers who have so far received entrusted funds for overseas alternative investments fear that most of the funds from mutual aid associations and small pension funds could be taken over by KIC. In the previous 20th National Assembly, former Democratic Party lawmaker Shim Ki-joon introduced a bill to expand the institutions that can entrust assets to KIC, but it was not properly reviewed by the SFC due to opposition from the asset management industry.
An asset management industry official said, "As institutions recently expand overseas alternative investments, asset managers are striving to secure competitiveness. If entrusted funds flow to KIC, it could encroach on the asset management industry's domain."
KIC emphasized that the initiative is aimed at strengthening the original purpose of KIC's establishment?to foster the domestic financial industry?rather than violating fair competition concerns raised by the asset management industry. A KIC official said, "The only area where competition might arise is loan investments, but KIC's share in that sector is very small. Since domestic financial infrastructure is not well established in alternative investments such as equities and bonds, this should be seen as KIC helping to expand networks rather than competing."
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