KIC posts worst annual return in 4 years, hit by strong dollar

  • 2016-05-23

– Sluggish equities and bond markets, firmer dollar dent 2015 returns

– Traditional assets outperform benchmark offered by finance ministry and BOK

Korea Investment Corporation (KIC) posted the worst annual return on assets in 2015 in four years, hit by sputtering financial markets, with the strong dollar eating into the translated incomes from non-dollar assets.

The sovereign wealth fund in South Korea said on May 20 that the return on its total assets turned to a negative 3% last year in terms of the U.S. dollar, from 4.02% in 2014. The latest result was the poorest reading since the minus 3.98% in 2011 at the height of the Eurozone crisis.

Its global equities portfolios yielded a negative 2.36% return in 2015, based on the MSCI All Country World Index, after the U.S. interest rate hike stoked concerns about a global economic slowdown. The return of bond portfolios came to a negative 3.15%, based on the Barclays Capital Global Aggregate Index, KIC said in a statement.

With the U.S. Dollar Index climbing 9.26% last year, the strengthening dollar reduced the translated incomes of assets denominated in other currencies. It gave no breakdown of dollar and non-dollar assets.

For the assets entrusted by the finance ministry and the Bank of Korea, however, KIC said that traditional asset portfolios outperformed the benchmark offered by the ministry and the central bank by 0.68 percentage points, posting benchmark-beating returns for a fourth straight year. Traditional assets include equities and bonds.

KIC beat the benchmark provided by the finance ministry and the central bank by 1.31 percentage points in 2014; 1.08 percentage points in 2013; and 0.66 percentage points in 2012.

The sovereign wealth fund managed $91.8 billion in assets at the end of last year. It has gained cumulative investment incomes of $11.8 billion since its inception in 2005.

Details of KIC’s asset portfolios are in the tables as follows:

KIC’s annual returns on assets

Year 2011 2012 2013 2014 2015
Return (%) -3.98 11.71 9.09 4.02 -3

Source: KIC

Note: Since initial investment, the annualized return on assets has reached 3.23% up to date.

 

Breakdown of KIC’s investment assets at end-2015

Asset type Equities Bonds Alternatives Strategic Others
Portion (%) 39.5 34.4 12.4 1.3 12.4
Year-on-year change (% points) (-4.3) (-4.8) (+4.4) (N/A) (N/A)

Source: KIC

Cumulative returns on KIC’s alternative assets since initial investment

Asset type Real estate & Infrastructure Hedge funds Private equities On aggregate
Annualized return (%) 7.39 6.55 4.56 6.78

Source: KIC

Note: KIC plans to gradually increase the portion of alternative assets to a 20% level by 2020, from 12.4% at end-2015.