Korea Investment Corporation’s (KIC) Chief Investment Officer Shinwoo Kang said the sovereign wealth fund is seeking transformative ideas to make thematic approaches to alternative assets amid high valuation concerns, but played down the risk of a possible price correction.
In a keynote speech for the ASK 2017 Global Real Estate & Infrastructure Summit on Oct. 25, Kang said alternative asset prices have been supported by real economic growth in both developed and emerging markets since late 2016, and thus talk of high valuations will not hold back KIC from expanding alternative investments.
“Rather than worrying about correction or bubble, the likelihood of which happening is low, we need to focus on new and transformative ideas that bring higher returns in a more investment-friendly environment,” Kang told the conference hosted by the Korea Economic Daily.
“If there is controversy about high valuations, it would be good to look for those creating a hefty cash income.”
The $130 billion sovereign fund will look beyond traditional real estate segments such as office and retail buildings to niche sectors such as warehouses and logistics facilities. It will also seek to work with new, small- to medium-sized general partners with growth potential.
When investing in real estate and infrastructure, KIC uses three-dimensional approaches, based on (1) economic cycles; (2) thematic perspectives such as the emergence of online commerce, aging population and urbanization; and (3) geo-economics.
By geography, cities in central United States such as Denver, Dallas and Miami are emerging as alternative investments to those in western states such as San Francisco which had soared in prices. Berlin in Germany also becomes an alternative target to Britain, according to Kang.
In a panel session of limited partners after Kang’s speech, KIC’s director of real estate and infrastructure investment Chung Hyun Lee said that KIC will broaden the spectrum of investment assets by taking a more flexible approach to shore up returns.
It remains committed to the plan of boosting the proportion of alternative assets to 20% of total assets by 2020 from the current 14%.
“Stock markets did much better than we had expected, so the proportion of alternative assets has not increased as much as we aimed for,” Kang added.
By Chang Jae Yoo
<Edited by Yeonhee Kim>