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Traditional investments, including equities and fixed income, account for 82.5% of KIC’s total portfolio, playing a central role in our pursuit of investment targets.
We started with fixed-income investments in 2006 and expanded our asset classes to include equities, inflation-linked bonds and more. The annualized return for KIC’s traditional investments as of 2021 was 5.67%.
As the scope and scale of our investments grew, so did the need to adjust our asset class weights and to pursue companywide risk management. We started an asset allocation forum in 2019 in which KIC’s investment managers engage in in-depth discussions, with forum results being reflected in KIC’s decision-making process.
While each investment group aims to generate excess returns through using various strategies, the Asset Allocation Group analyzes capital market expectations for each asset class based on financial market forecasts and sets optimum allocations based on companywide risk levels, contributing to the achievement of KIC’s absolute return targets.
Through these functions, KIC maximizes the effectiveness of investment diversification and maintains portfolio-wide risk at appropriate levels, which helps generate returns in a sustainable manner.
KIC conducts multi-faceted global macroeconomic research for effective asset allocation, using the findings to determine short-term market responses and to construct mid- and long-term portfolios. We are laying the groundwork to better respond to changes in the investment environment in consideration of the economic structures and political/social issues of major countries.
We also actively communicate with investment managers worldwide to share and verify investment ideas and global economic and market forecasts, using what we know and learn to best build our investment portfolio and improve returns.
KIC invests in publicly listed companies globally that are undervalued relative to their long-term intrinsic value. Our goal is to consistently achieve excess returns in accordance with investment guidelines.
More specifically, we pursue stable and sustainable returns through building a balanced portfolio of fundamental and quantitative strategies and of direct and indirect investments.
Our fundamental direct equity investments are managed by the Equity Investment & Strategy Group and the Global Equity Investment Group. Both aim to generate excess returns through analyzing the intrinsic value of companies and industries.
One of our fundamental direct investment strategies, called the Global Core Strategy, was introduced in 2019, expanded in 2020 and recently spun off into its own group – the Global Equity Investment Group. The aim is to strengthen our sector-portfolio structure, which is managed by sector specialists.
The other fundamental direct investment strategy is specialized by region. KIC’s New York and London offices manage our North America and Europe funds, respectively, and managers at KIC’s Seoul headquarters manage our emerging market and Asia funds.
Our indirect equity investments are managed by the Equity Investment & Strategy Group. The main aim here is to improve portfolio returns and respond appropriately to market changes. The group does this by diversifying strategies and enhancing KIC’s ability to manage the portfolio in a more balanced manner. Managers in charge of indirect investments also work with our New York and London offices to find new strategies, strengthen communications with global managers and enhance KIC’s ESG investments as a whole.
For quantitative investments, the Quant Equity Investment Group works to develop KIC’s direct investment capabilities long-term. It has built a global portfolio management and trading system through benchmarking advanced systems overseas. After starting with a passive strategy in 2008, the group adopted a quantitative alpha (excess return) model through which investment decisions are made using algorithms based on mathematical and statistical models. It uses an enhanced strategy to improve cost efficiency and returns.
The group also employs an independently developed management platform for quant investments to respond to a global investment environment that is rapidly changing due to technological innovations, including the diversification of sources for big data and alternative data, advancements in artificial intelligence / machine learning algorithms and the evolution of ESG strategies. In these and other ways, the Quant Equity Investment Group is developing and expanding the use of next-generation investment strategies.
Since starting global fixed-income investments in 2006, KIC’s Fixed Income Group has efficiently managed assets through fulfilling its role of improving portfolio stability, supplying liquidity and capturing risk premiums.
KIC's fixed-income assets include sovereign bonds, corporate bonds and asset-backed securities, as well as the currencies of the Americas, Europe and emerging markets. For optimal portfolio management, the Fixed-Income Group manages risk factors, including market, credit and liquidity risks in the global bond market, within investment guidelines.
For the directly invested fixed-income portfolio, the group focused in 2021 on foreign exchange strategies and asset allocation strategies within sectors, on the back of successful sector-specific management strategies.
It uses regional and sector-specific expertise derived from collaborations with overseas offices to systemically manage a broad global portfolio, diversify risk and pursue stable excess returns.
For the external fixed-income portfolio, the group has expanded its unconstrained strategies to pursue absolute returns and diversify sources of excess returns. It has strategically allocated risk between the internal and external portfolios using a proprietary risk monitoring system to achieve higher long-term returns.
KIC has established a tactical asset allocation strategy to improve overall returns and implemented related processes. The strategy entails adjusting the weight of asset classes based on allocations for spot markets, hedging strategies and alpha strategies, thereby managing total return volatility for traditional assets and improving returns.
In 2021, KIC developed quantitative indicators based on both scenario analyses following financial market changes and economic and market data. We also strengthened our internal system for portfolio management and risk analysis.
