KCGI Asset Management Launches Didim Fund... "Protecting Principal Even with 4% Annual Withdrawal"

"Retirees desire their retirement pensions to be managed steadily without the principal being depleted. KCGI Asset Management's Didim Fund is planned to be operated with the goal of preserving the principal even when withdrawing 4% annually."

Kang Yeonsu, Head of Global Operations at KCGI Asset Management. Photo by Yoo Hyunseok

On the 21st, Kang Yeonsu, Head of Global Operations at KCGI Asset Management, introduced the 'KCGI Didim Freedom Lifetime Income TIF Fund' at a briefing held at the Korea Financial Investment Association in Yeouido.

The KCGI Didim Freedom Lifetime Income TIF Fund is designed to implement William Bengen's '4% rule,' which allows withdrawals of 4% of the evaluated amount annually for over 30 years. It was designed from the early development stage to be suitable for use during the pension receipt period. The KCGI Didim Freedom Lifetime Income TIF Fund is a renewal of the fund launched in October 2020. Looking at the performance of the existing fund, it recorded a cumulative return of 22.3% and an annualized compound return of 5.0% since inception. Head Kang stated, "It has been almost four years since the fund was established, and from October 1, 2020, it has achieved an average annual return of 5%."

The KCGI Didim Freedom Lifetime Income TIF Fund invests more than 60% in safe assets such as domestic and overseas bonds, while the remainder is diversified across eight asset classes including developed market stocks, developed market growth stocks, U.S. high dividend stocks, emerging market stocks, domestic stocks, and REITs. He emphasized, "Typical balanced funds are somewhat simplified, investing in domestic and overseas stocks and bonds. However, we invest in domestic and overseas stocks, overseas growth stocks, overseas dividend stocks, emerging market stocks, and alternative investment assets such as REITs."

KCGI Asset Management plans to rebalance the assets of the KCGI Didim Freedom Lifetime Income TIF Fund whenever risk factors arise. He explained, "Tactically, we conduct asset allocation every quarter and also on an ad hoc basis when specific risk factors are deemed to have materialized. We perform regular annual rebalancing of stock and bond ratios to pursue stable excess returns."

He added, "We focused on combinations of asset classes that maximize risk-adjusted returns by considering the fundamentals of countries and asset classes and conducting numerous backtests. We concentrated on portfolio adjustments that minimize volatility while maximizing risk-adjusted excess returns, aiming to achieve both goals."

The target return of the KCGI Didim Freedom Lifetime Income TIF Fund is 5?7% annually. The target volatility and maximum loss are 6% and 10%, respectively. He emphasized, "Controlling the maximum loss rate within 10% is key to achieving the 4% rule. When the maximum loss approaches 7%, the risk management system operates prioritizing principal protection." He added, "Even when withdrawing 4% of the investment annually, the goal is to generate an average annual return of 5.4% on the remaining assets, enabling the implementation of the 4% rule."