Definition
The Korea Investment Corporation (KIC) is a government-owned investment organization based in South Korea. Established in 2005, its purpose is to safeguard and enhance the long-term value of state assets by investing foreign exchange reserves and public funds in overseas markets. KIC’s asset allocation includes bonds, public equities, alternative investments, and absolute return assets.
Phonetic
The phonetic pronunciation of “Korea Investment Corporation” would be: kuh-ree-uh in-vest-muhnt kor-per-ay-shun.
Key Takeaways
- Korea Investment Corporation (KIC) is South Korea’s sovereign wealth fund, established in 2005 to enhance the long-term wealth of South Korea by investing a portion of the country’s foreign exchange reserves and other public funds globally.
- KIC operates under a “prudent person rule” , which indicates that they manage the funds with the diligence and expertise of a prudent person to ensure wealth preservation and the acquisition of stable returns over the medium and long terms.
- KIC’s investments are globally diversified, and they invest in a vast variety of assets such as public and private equities, fixed incomes, real estates and infrastructure, absolute returns, and other alternative investments.
Importance
Korea Investment Corporation (KIC) is significant in the world of business and finance because it is South Korea’s sovereign wealth fund, established in 2005 to enhance the nation’s future wealth, reduce market risk, and diversify away from its domestic economy. With the government of South Korea as its owner, the corporation makes strategic investments at home and abroad. KIC, managing over $157 billion in assets, plays a key role in investing into a variety of asset classes, including equities, fixed income, real estate, and alternative investments around the world. In doing so, KIC not only supports domestic economic stability but also contributes to global financial markets.
Explanation
The Korea Investment Corporation, often abbreviated as KIC, primarily serves as a sovereign wealth fund, created by the South Korean government to enhance its national wealth and support future generations. As an institutional investor, its primary purpose is to manage and invest the funds pooled from the government and other central public entities. This involves working with foreign investments that pertain to real estate, stocks, bonds, and other assets that can generate a profit over time.
By generating sustainable, long-term returns, it aims to contribute to the growth and stability of the Korean economy. The KIC functions by conducting a varied array of investment portfolios, all strategically designed to optimize profit and minimize potential risks. It has the latitude to invest in alternative markets as well, such as hedge funds and private equities. The overall aim here is to diversify its financial portfolio across a broad spectrum to yield the most favourable financial outcomes. In doing so, KIC aims to ensure a level of fiscal security for South Korea, making it a significant player in managing its national assets.
Examples
1. Samsung Electronics Investment: The Korea Investment Corporation (KIC) is a notable stakeholder in Samsung Electronics. In 2017, KIC made headlines when they purchased an additional $500 million worth of shares from Samsung Electronics to strengthen their investment portfolio. This investment not only demonstrates KIC’s role as an institutional investor but it also illustrates the potential influence this corporation can have on globally recognized companies.
2. Equity Investment in Airbnb: In 2018, it was reported that KIC had planned a direct investment into Airbnb – an online marketplace company for arranging or offering lodging, primarily homestays. At that time, Airbnb was not yet listed on any stock exchanges, so this example illustrates how KIC also participates in private equity investments, which can generate substantial returns if the portfolio company goes public or is acquired by a bigger company.
3. Investment in US Real Estate: In 2019, KIC ventured into a joint investment of $1 billion in U.S. real estate with a US public pension fund affiliate. This shows that apart from investing in securities of corporations, KIC also takes part in major real estate deals internationally as part of their strategy to diversify their investment portfolio.
Frequently Asked Questions(FAQ)
What is the Korea Investment Corporation (KIC)?
The Korea Investment Corporation is a government-owned investment corporation established in 2005 to preserve and maximize the long-term return on assets for South Korea. It manages assets entrusted by the Government, the Bank of Korea, and other public funds.
What are the core responsibilities of KIC?
KIC’s core responsibilities include investing and managing assets entrusted by the Government and the Bank of Korea, conduct asset management in accordance with “prudent investor rules”, and externally entrusted assets’ investment and management business.
Which assets does KIC manage?
The Korea Investment Corporation manages a diversified portfolio that includes traditional assets such as bonds and stocks, but also alternative investments like real estate, infrastructure, hedge funds, and private equity.
What is KIC’s investment philosophy?
KIC’s investment philosophy is based on a long-term perspective, diversifying its investment portfolio across various asset classes and regions to spread risk and optimize returns.
Where is KIC headquartered?
The headquarters of the Korea Investment Corporation are located in Seoul, South Korea.
How does KIC manage risk?
KIC manages risk through a rigorous and systematic process that includes diversification, asset allocation adjustments, and regular performance and risk level evaluation.
Who oversees the Korea Investment Corporation?
The KIC is overseen by a Steering Committee that establishes basic management policies and a Board of Directors that regulates everyday business activities.
What are some of the KIC’s strategic partnerships?
KIC fosters strong relationships with major global financial institutions and other sovereign wealth funds to leverage global investment opportunities.
Does KIC actively engage in corporate social responsibility?
Yes, KIC strongly believes in corporate social responsibility. It adheres to international standards of environment, social, and governance (ESG) criteria in its investment processes.
How transparent is KIC in relation to its operations?
As a government-owned entity, KIC places a high degree of importance on transparency. Its annual reports and financial statements are available to the public.
Related Finance Terms
- Asset Management
- Public Pension Funds
- Alternative Investment
- Private Equity
- Sovereign Wealth Funds
