KIC aims to pick domestic GPs to manage $2 billion overseas infrastructure fund

  • 2016-05-16

To select 2~3 local asset managers or securities firms as GPs

– If fails to bring in local GPs, it will open the door to foreign asset managers

– GPs required to make equity investment in overseas projects; state-run banks and pension funds to extend loans

By Hyunjin Lee

South Korea’s sovereign wealth fund, Korea Investment Corporation (KIC), is aiming to pick two to three domestic asset management firms or securities houses to manage a $2 billion fund which will invest in overseas infrastructure projects involving domestic companies.

If the plan goes through, they will be the first local general partners (GPs) to team up with KIC for foreign alternative investments. KIC manages $96 billion of assets entrusted by the local government, the Bank of Korea and public funds. By law, it is obliged to invest in overseas assets only.

But should KIC fail to attract GPs to the fund to be launched, it will open the door to foreign asset management firms and investment banks, KIC Chief Executive Sung-Soo Eun said in a meeting with heads of local asset managers and securities companies early in May.

His remarks came after KIC and the country’s land ministry made a joint announcement last October of a plan to form $2 billion worth of Korea Overseas Infrastructure Fund (KOIF), ahead of the establishment of Asia Infrastructure Investment Bank.

KOIF will be the first of such a type to be set up by the country’s sovereign wealth fund and invest in overseas infrastructure assets, in which South Korean companies would be involved for development, construction, management or equipment supply. KIC and GPs in the KOIF are required to make equity investments in foreign projects which South Korean companies will secure.

“If designated as GPs, they not only receive management fees, but also have to inject their own capital (into overseas projects),” said Seunghwan Lee, senior managing director and head of KIC’s investment strategy team. “This means they share business risks. Thus, asset management companies are taking a measured approach (to the KOIF).”

With South Korean builders and energy firms gearing up for infrastructure projects to be offered in Iran, KOIF is expected to help ease financial difficulties of those companies hit hardest by waning demand in the wake of lower oil and commodity prices.

Together with pension funds, Export-Import Bank of Korea and Korea Development Bank, which tend to keep away from equity investments in long-term projects to avoid uncertainties, will extend loans to KOIF-invested projects.  

KIC has entrusted $33 billion to $35 billion, or about one third of its assets under management, to outside managers. Of them, only $700 million has been allocated to domestic securities firms and fund houses to invest in stocks and bonds, which represent a meager 2% of the assets it entrusts to outside managers.

The chief executive of KIC said in a news conference for his inauguration last January that the sovereign wealth fund will double the size of assets to be committed to local investment firms, in an effort to help develop the country’s financial industry.

To explain details on KOIF, the sovereign wealth fund held a meeting with heads of domestic asset management firms and securities houses early in May, in which officials from the regulatory Financial Services Committee and the Korea Financial Investment Association, an industry lobby group, also participated.

Ahead of the meeting, an official of a local asset management firm told the Korea Economic Daily that he would like to have details on how to share risks and profits between an asset manager and local firms which are looking to go abroad.

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