Recovery to $200 Billion After 3 Years... The Secret Behind Korea Investment Corporation Surpassing Its Asset Peak [Institutional Perspective]

AUM Reaches $206.3 Billion as of Late August, All-Time High
First 'Internal' CIO Leads Improvement in Returns
Industry Preference Rises... National Pension Service to KIC Transfers Also Increase

The Korea Investment Corporation (KIC)'s assets under management (AUM) have surpassed their highest point in three years. This marks a remarkable transformation for the 'sovereign wealth fund,' which once faced difficulties due to poor returns. Its preference within the investment industry is also increasing day by day. KIC is a sovereign wealth fund that invests 100% of its assets overseas.

According to the 'Business Status' report recently submitted by KIC to the National Assembly on the 29th, the AUM was recorded at $206.3 billion (approximately 285 trillion KRW) as of the end of August. This is the first time in about three years that the AUM has exceeded the $200 billion mark since recording $205 billion (approximately 284 trillion KRW) at the end of 2021. Investment returns until August this year amounted to $15.9 billion (approximately 22 trillion KRW), and if the current trend continues, it is highly likely that the AUM will break the annual 'asset peak' and close the year near 300 trillion KRW.

At the Center of the Asset Peak is the 'Tailwind' of the U.S. Stock Market

The top asset driving the AUM past $200 billion is equities. The equity return rate reached 16.72% through August. The equity asset size is $81.9 billion (approximately 113 trillion KRW), accounting for 39.7% of the total. KIC does not disclose the country-specific investment proportions in equities separately, but it is known that U.S. stocks make up roughly 60%, with Europe, Asia, and others accounting for the remaining 40%. It has clearly benefited from the continuous record-high rally of the 'U.S. market.'

KIC was established in 2005 with the goal of enhancing the return on the government's foreign exchange reserves. It started investing with $1 billion and first surpassed $100 billion in AUM in 2016. It peaked at $205 billion in 2021 but retreated to $169.3 billion in 2022. During the global downturn in 2022, the annual equity investment return was -19.27%, which was not only an absolute low but also 1.37 percentage points below the benchmark. This led to criticism comparing its performance unfavorably with that of the National Pension Service and others. However, it rebounded to $189.4 billion last year and has now surpassed its previous peak. This year, equity investments are outperforming the benchmark by 0.23 percentage points. Bonds are also exceeding the benchmark by 0.17 percentage points, recording a return of 1.87%.

At the center of the record-high AUM is Lee Hun, Chief Investment Officer (CIO) of the Investment Management Division. In August 2022, he became the first 'internal candidate' to assume the CIO position for a three-year term. At that time, the situation was unsettled due to poor returns and staff departures. The head of real estate investment had been vacant for several months, and the head of private equity investment resigned. Having joined KIC in 2014 and built investment networks worldwide, CIO Lee stabilized the organizational atmosphere and pursued three strategies: ▲ advancing asset allocation foundations ▲ strengthening performance volatility management ▲ refining risk management, which raised the corporation's returns.

Soaring Popularity... Cases of National Pension Service Employees Moving to KIC

Within the industry, KIC is proving its 'investment skills' with numbers, and there are even overseas institutional investors who prefer meetings with KIC over the National Pension Service, partly due to KIC’s location in Myeongdong, right in the heart of Seoul. Its appeal as a workplace is also increasing. During the second round of experienced staff recruitment this year, it was confirmed that a former National Pension Service portfolio manager moved to KIC. A financial investment industry insider said, "This would have been hard to imagine in the past," adding, "while the National Pension Service remains one of the top institutions in the industry, the inconvenience of regional work (in Jeonju) and KIC’s relatively elevated status seem to have caused the move."

There are also quantitative indicators showing KIC’s popularity in the industry. As of the end of September this year, KIC’s turnover rate is only 1.8% cumulatively. This is an extremely rare figure in the investment industry, where job changes are common. It is the lowest level since the corporation’s founding in 2005. This means that the 'investment magicians' who created the largest asset base in history continue to remain at the corporation. The turnover rate was 8.9% in 2022 and 4.9% last year. In comparison, the average turnover rate of National Pension Service fund managers from 2018 to 2021 was 10.6%, with about 30 portfolio managers leaving annually.