Korea Sovereign Wealth Fund CIO Says Europe Assets ‘Attractive’
January 19, 2012, 7:20 PM ESTBy Seonjin Cha
Jan. 19 (Bloomberg) -- Korea Investment Corp., the nation’s $43 billion sovereign wealth fund, said European assets are “attractive” amid the region’s sovereign debt crisis, and it plans to buy more real estate.
Europe “got to sell off assets to try to alleviate the burden,” Chief Investment Officer Scott Kalb said in an interview in Seoul yesterday. “We just want to be in a position to buy those assets when attractive opportunities arise. We want to be ready to take advantage of it.”
The region’s state-owned investment companies such as Singapore’s Temasek Holdings Pte and China Investment Corp. are diversifying assets as European’s debt problems and the U.S. economic slowdown threaten to dent returns in 2011 when global stocks had their worst performance since 2008.
The South Korean sovereign wealth fund, also known as KIC, spent about 70 million pounds ($108 million) last month to buy a building in London’s financial district to diversify its portfolio from bonds and stocks. The Seoul-based fund, which refers to property assets as real assets, wants to at least double the portion of such “non-traditional” investments over the long term from about 10 percent currently, Kalb said.
“The real asset is an important part of the diversification of our portfolio,” said the CIO, whose term is set to end in April. “Real assets provide you with a steady, stable source of cash flow. It also provides you with some kind of inflation hedge, the protection from inflation.”
European Banks
To kick off its real-estate investments, the fund will look into small-scale purchases, he said, without elaborating on specific regions.
Kalb ruled out any takeover of European banks, citing the ongoing sovereign debt crisis and stricter capital rules set by global regulators under Basel III.
“European banks have to raise a lot of capital,” he said. “We’d like to see the situation stabilize.” There will be a lot of pressure on the European banking sector, he added.
“We’re not rushing out to buy European banks,” Kalb said.
KIC added $78 million worth of Bank of America Corp. shares to its existing stake last year as the Charlotte, North Carolina-based bank shed more than half its market value, the fund said in August. The fund added shares from January via seven separate purchases using a $145 million dividend.
Bank of America
KIC initially bought a $2 billion stake in Merrill Lynch & Co. in February 2008, months before the firm was forced to sell itself to Bank of America. The fund held 72.6 million shares, or a 0.72 percent stake, in Bank of America as of Sept. 30, according to data compiled by Bloomberg.
South Korea’s Board of Audit and Inspection in 2010 said the fund should be sanctioned over losses from the purchase, calling KIC’s investment decision hasty and based on “inadequate” risk assessment.
Kalb said it is not the right time to exit the fund’s four- year-old investment in the bank, and improvements in the U.S. economy and financial industry will be the “effectors” to determine the timing of a sale of the stake.
“Over time, the prospects of Bank of America are bright,” said Kalb. “It has unmatched franchise in the U.S. As we get a recovery in the U.S. and the global economy, we think Bank of America will do fine.”
Fund Returns
The sovereign wealth fund had a minus 3.3 percent return from investing in stocks and bonds last year due to the global equity market rout, Kalb said. The MSCI World Index declined 7.6 percent last year, its first drop in three years.
The weak result is a “normal part” of the investment cycle for a long-term investor, he said. KIC had a 2.9 percent return from those assets on a compound average annual basis, which is good, given the fund is so new, he said.
The fund, established in July 2005 to invest part of South Korea’s foreign-exchange reserves overseas, posted returns of 8.46 percent from bonds and stocks in 2010, down from 18.67 percent in the previous year, according to its annual report published in June.
“As a long-term investor and sovereign wealth fund, our job is to create wealth over time, not all the time, not every minute,” said Kalb, who started at KIC in April 2009 with three-year term. “We expect a better performance this year.”
--Editors: Andreea Papuc, Linus Chua
To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
