KIC Sovereign Weath Fund Faces Questions Over Investable Capital

KIC logo. The strategic sovereign wealth fund of the Korea Investment Corporation (KIC), which promoted a capital of 16 trillion won (about $12.08 billion), is facing an ‘ammunition controversy’ ahead of its launch. Park Il-young, Chief Executive Officer of the Korea Investment Corporation (KIC), said that if the KIC launches as a strategic sovereign wealth fund, “the initial available financial resources that can be immediately utilized for investment are about 1 trillion won.” This explains that the approximately 16 trillion won in state-run bank stakes, which are mentioned as the financial resources for the strategic sovereign wealth fund, is far from cash that can be immediately injected into actual investments. Park answered that if the scale of newly discovered investment projects exceeds the available financial resources (about 1 trillion won), he would consult with the government to receive additional capital contributions or consignments. Representative Kim Sang-hoon of the People Power Party pointed out at the parliamentary inspection by the Finance, Economy and Planning Committee held at the National Assembly building in Yeouido, Yeongdeungpo-gu, Seoul, on Oct. 23, that the investment resources and annual execution plan for the KIC strategic investment account are unclear, based on a written reply previously submitted by the KIC. Kim said, “The investable amount and annual plans were ultimately not presented in the written reply,” and added, “It seems that the plan to secure investment resources is still opaque and unconfirmed.” Kim took issue with the feasibility of the approximately 16 trillion won in state-run bank stakes, about 4 trillion won in shares paid in kind, and 500 billion won in cash, which are being discussed as the resources for the strategic sovereign wealth fund. In particular, he pointed out, “Under the proposed amendment to the law, state-run bank stakes cannot be disposed of without government consent, placing constraints on cashing them out, and the shares paid in kind of NXC, the holding company of Nexon, have already failed to be bid on four times, showing limitations in cashing them out.” He added, “(The KIC) presenting such assets as financial resources while failing to come up with an actual investable amount and an annual plan is a vulnerable point.” Park Il-young, CEO of the KIC, explained by distinguishing between currently available resources and initial capital. Park said, “There is a cash contribution of 500 billion won, and dividends from state-run banks are expected to be roughly 500 billion won to 600 billion won,” adding, “I consider this to be immediately available financial resources.” Regarding the shares paid in kind, Park explained, “As they must be sold in stages, it is difficult to give specific figures yet.” He continued, “The most necessary task for us right now is to discover good investment projects,” and explained, “If the scale of the investment project exceeds the currently available financial resources, I intend to consult with the government to receive additional capital contributions or consignments.” However, Park made it clear that the approximately 16 trillion won in state-run bank stakes is not cash that can be immediately injected into investments. He said, “The 16 trillion won is initial capital, and it is far from immediately available cash,” adding, “A specific investment project has not yet emerged.” Kim also pointed out that the process by which the KIC was selected as the operating body of the strategic sovereign wealth fund is unclear. He particularly took issue with the expression contained in the KIC’s written reply, which stated, ‘It is understood that it was decided to proceed by newly establishing the KIC’s strategic investment account and expanding and reorganizing it into a sovereign wealth fund to carry out rapid and efficient strategic investments.’ He said, “Initially, former Deputy Prime Minister for Economic Affairs Koo Yun-cheol took the position that the KIC was not suitable as the operating body for the strategic investment account because it is an organization that manages foreign exchange reserves entrusted by the government and the Bank of Korea,” adding, “However, the answer regarding how the KIC was subsequently decided as the operating body is insufficient.” He continued, “According to the wording in the KIC’s written reply, it is understood that the KIC was notified of the details decided by the government and accepted them from a third-party perspective,” and pointed out, “There are concerns that the government decides which companies it wants to invest in or support, and the KIC plays a placeholder role bearing the responsibility.” In response, Park explained, “When comparing whether to create a separate strategic sovereign wealth fund or to operate it through the KIC, I understand that the government judged it more efficient to entrust it to the KIC.” Kim also raised questions about the KIC’s capability to invest in domestic strategic industries. He said, “The KIC has expertise in managing foreign exchange reserves and foreign currency assets, but it currently lacks expertise in investing in domestic strategic industries,” adding, “The written reply also practically admits that new professional personnel need to be hired.” In response, Park answered, “It is true that new operational personnel are needed,” but added, “However, the KIC took charge because we thought we could create synergy given that there is an existing operational network.” Securing independence between foreign exchange reserves and the strategic investment account was also raised as a contentious issue. Kim emphasized, “There is an explanation that an operational firewall will be established through the Investment Committee and the Investment Advisory Committee, but if the CEO and the Steering Committee are the same, it may be difficult to block external influences through the management,” adding, “The intention is not to reprimand, but to ask that the firewall for foreign exchange reserves be strictly maintained.”