State Funds Focus on Alternative Assets, Ex-KIC Official Says

Sovereign wealth funds are spending more money on alternative investments after stock markets gained and bond yields declined, said Scott Kalb, chief executive officer of KLTI Advisors and former chief investment officer of Korea Investment Corp.

“The large institutional investors are increasing their allocations to alternatives right now,” Kalb said in an interview with Bloomberg Television at the SALT conference yesterday. “To the extent that you get the capital available for long-term investment, you want to get out of the public markets.”

Investors are growing wary of publicly traded securities as interest rate cuts at central banks helped inject liquidity into markets, bolstering bonds and stocks. The MSCI World Index (MXWO) is almost double its March 2009 low, while the U.S. benchmark 10- year yield is near its July record lows.

Kalb, whose three-year term at the South Korean sovereign wealth fund, known as KIC, ended in April, said institutional investors are focusing on hedge funds and private equity, with real estate and infrastructure being the preferred asset classes.

“What continues to look attractive is real estate,” he said. “It’s bottoming in the U.S. Infrastructure is low, there is a lot of demand out there.”

Asia’s state-owned investment companies such as China Investment Corp., known as CIC, and Government of Singapore Investment Corp., or GIC, are diversifying assets to offset increased volatility. CIC’s alternative investments surged almost 40 percent in 2011, according to the company’s annual report, and GIC in July said investments in private equity and infrastructure gained.

More Infrastructure

Institutional investors may double the proportion of infrastructure investments in their portfolios within the next five to 10 years, Joyce Shapiro, managing director at Franklin Templeton Investments (BEN), said last month.

Kalb, who still serves as an adviser to KIC, also said that sovereign wealth funds, being long-term investors, will keep investing in emerging market assets as the prospects for those economies remain strong.

“You are going to have a lot of growth in the emerging world,” he said. “These are long-term funds. You are talking about intergenerational capital and so you want to have a long- term plan in place.”

Still, when investing in emerging economies, the portfolio should be made up of all major asset classes, Kalb said.

“You are taking advantage of growth there in terms of private equity, in terms of real estate, infrastructure, debt, equity and commodities. You want to have a diversified approach to the asset classes.”

To contact the reporter on this story: Klaus Wille in Singapore at kwille@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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