Korea Capital Market Institute

Sovereign Wealth Funds (SWF) are funds or entities that manage publically funded assets and which are government owned or operated. SWFs were started by the petroleum producing nations of the Middle East to manage the government`s oil revenues, but in the 2000s SWFs became common place also among the developing nations of Asia, based on their need to manage increasing foreign exchange reserves. Over the last 10 years, SWFs have grown dramatically both in size and number along with their influence on the markets. SWFs have come to play multiple roles for governments. In addition to its main objective of preserving and increasing the long term value of sovereign wealth, some SWFs assist in developing new growth engines through foreign investments and to also contribute to maintaining the stability of the local financial and capital markets. More recently, the role of SWFs as a stable provider of capital during times of financial crises is increasing in importance. The recent trend of SWFs has been to diversify their investment portfolios by increasing the share of stocks and alternative investments, towards the aim of enhancing returns. The target investment regions are also shifting from a predominantly developed markets centered portfolio to one with an increasing share of developing region markets. SWFs are expected to continue their growth and expansion, and along with it their influence on both local and global financial markets. Within this global trend Korea`s SWF, the Korea Investment Corporation (KIC), was founded in 2005. Since then, KIC has steadily improved its portfolio management capabilities and build up of a stable growth platform. Despite its commendable growth, the KIC has reached a point where it needs to re-evaluate and re-establish its roles and objectives, in order to transition to the next level of development. In particular, KIC needs to move up from the role limited to an external fund manager of foreign exchange reserves, to playing the role of central foreign investment authority of sovereign wealth. And, in addition to its objective of assisting the development of the local financial markets, it also needs to take on the objective of enhancing the national competitiveness by increasing its strategic overseas investments capabilities and strengthening its efforts at finding future growth engines for the economy.