South Korea’s $145 billion sovereign wealth fund, burned by the sudden shift to market pessimism late in 2018, plans to add to its allocation of bonds and cut shares globally to protect double-digit returns this year.
Korea Investment Corp., which was founded in 2005 to invest some of the nation’s foreign-exchange reserves offshore, is turning “slightly defensive” Choi Heenam, its chief executive officer, said in an interview with Bloomberg News.
The fund, known as KIC, is echoing a trend among sovereign wealth funds globally, which are shifting toward fixed income as their biggest asset class, marking the end of a five-year trend that favored equities, according to an Invesco report in July. Late cycle concerns — both volatility and the prospect of losses from equities — have pushed sovereigns toward a more defensive position, the report said.
While the risk-on mood has driven global equities to record highs amid recent optimism about the U.S.-China trade war, Korea Investment sees reason to be cautious.
After a 3.7% loss in its overall portfolio last year, the fund generated a return of about 10.3% in the first eight months of 2019, according to a spokesman. Korea Investment, which buys only overseas assets, had $121.6 billion in stocks and bonds as of end-August, and $23.9 billion in alternative investments.