South Korea’s KIC grows its real assets portfolio

South Korea’s sovereign wealth fund Korea Investment Corporation has upped its real assets allocation as part of its long-term plan to diversify its overall portfolio.

The investor’s real estate and infrastructure assets under management went up by $3.1 billion in total, according to its 2022 annual report. The report did not disclose the reason behind the increase or any investments that KIC made in those sectors.

Real assets represented the largest increase in KIC’s portfolio, which concurrently saw a significant drop in its allocations to fixed income and equities, in 2022. Currently, KIC has $16.5 billion, or 9.75 percent of its $169.3 billion total portfolio, invested in real assets. This represents an increase from the $13.4 billion, or 6.53 percent of its $205 billion total portfolio in 2021. The only other asset classes that saw an increase during that time period were private equity, which rose from $15.7 billion to $16 billion, and hedge funds, which inched up from $5.5 billion to $5.7 billion.

Real assets has delivered annualized rate of return of 7.88 percent since KIC made its first investment into the asset class in 2010. The sovereign fund’s expansion in real estate and infrastructure is in line with its plan to boost its alternative investment exposure from 18 percent in 2021 to 26 percent by 2025.

The report noted real estate will remain one of the “representative” alternative investment asset classes for KIC despite an overall decrease in market transaction volume and price adjustments in the face of an “uncertain external environment” and interest rate hikes globally.

Under the current changing market conditions, KIC said it has expanded its investments in the logistics and residential sectors, where cost inflation can be offset by high demand and short lease periods. The investor is actively looking for real estate debt investments for stable cashflow and potential distressed opportunities arising from the higher interest rate environment.

However, KIC has not disclosed further details on its real estate investment portfolio.

Despite its plan to grow and diversify its property allocation, KIC’s real estate team has undergone multiple leadership changes over the past two years. Last year, the investor hired former Qatar Investment Authority executive Thomas Cho to fill the head of real estate role that had been left open for a year.

Cho’s predecessor Cha Hoon left the role in November 2021 after only two months amid a wave of senior executive departures at the organization. Based in Seoul, Cho now oversees the sovereign wealth fund’s global real estate investments and works closely with its teams in New York, London and Singapore.