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2nd UPDATE: KIC Seeks Strategic Overseas Investments To Up Returns

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(Adds comments from KIC executives, background)

 

By Se Young Lee

Of DOW JONES NEWSWIRES

 

SEOUL -(Dow Jones)- Korea Investment Corp. Thursday outlined a plan to raise its investment in strategic overseas assets as well as in non-traditional avenues to increase its returns, and its intent to hold on to its Bank of America Corp. (BAC) stake for now despite facing sharp criticism for its decision to invest in the bank.

The sovereign wealth fund, in a report to lawmakers, said it will continue to diversify its portfolio through strategic overseas investments in sectors like commodities and energy. The strategy is in line with that of its Asian peers, who have increasingly sought to hedge against inflation through such investments as well as secure crucial resources for their respective countries.

The fund, the bulk of whose investments are now in bonds and stocks, also aims to further develop its alternative investments portfolio and invest in hedge funds, private equity funds, real estate and commodities.

"We're coming off the global financial crisis, so good investment opportunities (for alternative assets) are everywhere," KIC Chief Executive Chin Young-wook told lawmakers during an audit in the National Assembly. "We won't be extremely aggressive in growing the assets, but I'd like to see the allocation for alternative assets to rise to about 10% of the overall portfolio in the near future from about 3% currently."

KIC in July mandated Switzerland-based Partners Group Holding AG (PGHN.EB) to invest in real estate on its behalf but didn't disclose how much money the fund will invest.

In June, KIC said it will invest $200 million in New York-listed natural gas producer Chesapeake Energy Corp. (CHK). Chinese sovereign wealth fund China Investment Corp. and Singapore state-owned investment company Temasek Holdings also made similar investments in Chesapeake at the time.

In the report to the National Assembly, KIC said it will also seek joint investments with other financial investors, including fellow sovereign wealth funds as it seeks strong returns.

"We posted strong gains in the second half of last year, and we're generating stable earnings so far this year despite market volatility," Chin said during the National Assembly audit. "Sovereign wealth funds tend not to disclose their performance, but our returns are fair in comparison to the funds that do reveal their earnings."

The official said the sovereign wealth fund has generated $3.2 billion in investment returns as of Oct. 11 since November 2006, which translates to an overall portfolio size of $36.52 billion from $33.32 billion in initial investments. KIC manages the money on the behalf of the Bank of Korea and Ministry of Strategy and Finance.

 

KIC: Too Early To Divest From Bank of America

 

During the audit, lawmakers sharply criticized the sovereign wealth fund's executives for its 2008 decision to invest $2 billion in Merrill Lynch.

Their comments echoed the assessment from the Board of Audit and Inspection report issued in September, which said KIC acted rashly without establishing proper internal standards for such investments and did not adequately consider the potential financial risks.

KIC said in its report to lawmakers that it has incurred a cumulative 51.68% investment loss on the Merrill investment. Merrill was merged with Bank of America Corp., following which KIC's Merrill shares were converted into Bank of America shares.

KIC Chief Investment Officer Scott Kalb told lawmakers separately that now isn't the right time for the fund to divest its stake in Bank Of America Corp.

"We cannot manage this position looking backward," he said. "Looking forward, as the economy improves I am very confident that so will the value of Bank of America."

KIC didn't disclose in the report its exact position in Bank of America, but a U.S. Securities and Exchange Commission filing dated Aug. 12 said the fund held about 66.1 million shares in the U.S. bank. Based on Bank of America shares' closing price of $11.75 Wednesday, KIC's stake would be worth about $776.7 million.

 

-By Se Young Lee, Dow Jones Newswires; +82 2 3700 1904; vincent.lee@dowjones.com

 

(END) Dow Jones Newswires

October 21, 2010 06:14 ET (10:14 GMT)

Copyright (c) 2010 Dow Jones & Company, Inc.

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