Korea Sovereign Wealth Fund Plans to Increase Alternative Assets

South Korea’s $84.7 billion sovereign wealth fund plans to increase investments in real estate, private equity and infrastructure, according to its chairman.

Korea Investment Corp. will raise its allocation for alternative investments to 15 percent by year-end from 8 percent currently, and will aim for 50 percent over the next five years, Chairman Ahn Hongchul told reporters in Seoul Wednesday at a seminar celebrating its 10th anniversary. The fund only invests overseas and $76.7 billion, or 90.5 percent of its total net assets, was allocated to stocks and bonds in 2014, according to its annual report issued in May.

The company’s initiative comes as the South Korean government plans to boost outbound investment to support a weaker currency. The Finance Ministry announced measures this week including tax benefits for funds buying global equities and looser regulations on insurers’ currency hedging and foreign debt purchases.

“I expect the returns to exceed 10 percent if holdings of alternative assets rise above half of the portfolio in the longer term,” said Ahn. “Considering the pace of increase in assets,” there is scope to increase the proportion, he said.

Investment in hedge funds, private equity and real estate was $6.8 billion last year, according to KIC’s annual report. The total return was 10 percent in 2014 and 4 percent in dollar terms. From the local-currency perspective, it was 11.1 percent over the past three years.

The South Korean won weakened for a fourth straight quarter in the three months through June. It traded at 1,117.59 a dollar in Seoul, after falling to a three-month low of 1,127.55 on June 29, data compiled by Bloomberg show. A report Wednesday showed exports contracted for a sixth month in June.