Investment Philosophy and Policy

Investment Philosophy

Investment Policy

The KIC investment objective is to generate consistent and sustainable returns in excess of the benchmark within an appropriate level of risk. Under the principle of prudent and responsible investment, KIC strives to increase returns while (1) minimizing the risks from individual markets and assets through portfolio diversification; and (2) exercising flexibility to seize investment opportunities.

KIC signed investment management agreements with the Bank of Korea and the Ministry of Strategy and Finance in June and October of 2006, respectively. We began investing the entrusted assets in November of the same year, and construction of the portfolio using the initially entrusted assets of USD 20.0 billion was completed in June 2008.

Initially, our investments started with traditional asset classes such as stocks and bonds. However, the scope of investment at KIC has been broadened to include inflation-linked bonds and commodities as well as private equity, real estate, hedge funds and special investments. In addition, as part of portfolio diversification, we have increased our exposure to emerging markets since 2010.

Decisions related to strategic asset allocation are subject to deliberation by the Steering Committee, the highest-decision making body of KIC. The investment management agreements signed between KIC and sponsors specify eligible asset classes and benchmark targets, and they serve as the basis for risk management and performance evaluation.

KIC pursues benchmark returns (beta) by diversifying investments in the range of currencies and countries as set forth in the investment management guidelines. We also strive to generate excess return over the benchmarks (alpha) through active management within an appropriate level of risk.

Regarding traditional assets, we manage risk using the ex-ante tracking error from active investing relative to the benchmark. If the weighting of an asset class deviates from a set range relative to the benchmark, adjustments are made so that exposure falls within the set range. The portfolio is rebalanced at pre-determined times to maintain policy weightings for each asset class.

KIC adheres to the basic principles of acting in good faith and enhancing shareholder value in the long term when exercising voting rights. Under these basic principles, KIC has drawn up related procedures to ensure voting rights are exercised appropriately.

 

However, it is our basic policy to maintain a neutral stance when exercising voting rights for holdings of less than 1%, or in the case of externally managed investments.
The Compliance Officer checks whether the exercise of voting rights adhere to internal regulations.