South Korea’s US$200b wealth fund is betting on the metaverse and AI startups

[NEW YORK] South Korea’s US$200 billion sovereign wealth fund plans to boost investments in Silicon Valley startups as it looks to the metaverse and artificial intelligence (AI) to accelerate its expansion in alternative assets.

Seoungho Jin, who took over the reins of Korea Investment (KIC) in mid-2021, also has his eyes on hotels, which he sees as a good play on the global recovery from the coronavirus pandemic.

Jin is looking beyond the recent downturn in listed technology stocks and the wider risks to the sector this year from the Federal Reserve driving interest rates higher. He sees alternative assets accounting for about 25 per cent of KIC’s portfolio by 2025, versus around 17 per cent last year, and assets under management eventually rising to US$300 billion.

“Some investors say Silicon Valley is already saturated, which I have to concede is partly true, but it is still a source of global growth,” Jin, 59, said in an interview in Seoul. “There are still plenty of good opportunities if you chase them eagerly.”

KIC has almost doubled in size over the past 5 years, after a slow start when it was created in 2005 to increase national wealth and contribute to the nation’s finance industry. The fund, which only invests outside of South Korea, has yet to release its results for 2021.

Jin expects to add to headcount in the fund’s San Francisco office this year to explore investments in tech, health and green ventures in Silicon Valley. The metaverse concept that is dominating attention there is for an immersive version of the Internet, where everyone can interact, play games and complete tasks as a digital avatar, using tools like virtual or augmented reality goggles.

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KIC is also putting more money into tech shares while evaluating opportunities in financial stocks, which may benefit from higher interest rates, he said.

In a wide-ranging interview with Bloomberg, Jin also said:

• KIC will continue to seek investments in real estate, including hotels, which should benefit as travel increases

• The fund’s allocation to alternative assets, including private equity and hedge funds, will increase by about 2 percentage points in 2022

• Fixed-income assets will be trimmed by around 3 percentage points this year as global monetary policy normalises. Equities holdings will increase slightly

• KIC is looking at floating-rate notes or other debt products that could hedge against rising interest rates

• Indian bonds look attractive among emerging-market debt amid relatively firm corporate earnings and a good investment environment

• KIC has employed more quantitative strategies recently and given its expectation for market volatility it will add more staff in this area

PAINFUL MEMORIES

“We’re in the passage from childhood to adulthood – a crucial stage ahead of our coming-of-age,” said Jin, who previously worked at the finance ministry and the Presidential Committee on Balanced National Development.

As well as boosting assets, Jin wants to make risk management more sophisticated and decision-making processes more transparent.

He also sees KIC as providing South Korea with an economic buffer to ensure it never repeats the events of 1997, when it was forced to seek a loan from the International Monetary Fund. Underscoring this point, Jin noted that the US$20 billion gain KIC made in 2020 was bigger than the emergency loan.

“I realised then how rough life gets for the people of a country with no financial power,” said Jin, who was taking a career break then, studying in the UK.

The pound surged against the won and suddenly he was struggling to pay tuition fees. “If we had a fund like KIC back then, we wouldn’t have experienced the pain.” BLOOMBERG