KIC eyes total portfolio approach as real estate underperforms

The Korea Investment Corporation, which manages a $210 billion portfolio, is considering a shift to a total portfolio approach as its real estate investments have underperformed compared with other asset classes over the past three years.

Sean K Lee, KIC’s deputy chief information officer and head of the alternative investment division, shared during a keynote panel at PERE Seoul on Monday that returns from real estate have lagged behind those of private equity and public equities in recent years.

According to KIC’s 2024 annual report, the investor recorded an 18.83 percent return on public equities in 2024. While yearly returns for alternative investments were not disclosed, private equity, real estate and infrastructure have generated annualized returns of 9.41 percent and 6.83 percent, respectively, since their inception. Currently, KIC allocates 22 percent of its portfolio to alternative investments, with real estate and infrastructure accounting for approximately 25 percent of that allocation.

In response to these challenges, KIC has been seriously discussing a move away from its strategic asset allocation approach toward a total portfolio approach, particularly as it reassesses the role of real estate within its portfolio.

Lee noted that the current performance results reveal a significant deviation between the public equity market and real estate, which, logically, would suggest a substantial reduction in real estate allocation. He acknowledged this as a major challenge for his team.

To address this, Lee explained that adopting a total portfolio approach would allow for greater flexibility, enabling the investor to focus more on returns and evaluate real estate investments on an asset-by-asset basis when allocating capital. He added that his team will continue to consult and communicate to refine their approach to real estate.

Despite these considerations, KIC does not anticipate drastic changes to its real estate allocation. Lee explained that with a portfolio of over $200 billion, any significant shift would have a heavy impact on its overall portfolio.

However, KIC is adjusting its strategy within the real estate portfolio to meet its overall target return of G7 inflation plus 3 percent, which translates to a 7-8 percent return. The fund is increasing its allocation to core and core-plus real estate, as it currently has more than 50 percent of its real estate portfolio in opportunistic and value-add strategies. The investor did not disclose its current allocation to core-plus and core strategies.

“We want to have more allocation to core and core-plus, especially when we think about the core traditional assets, like office and retail,” he noted. While these sectors have struggled, Lee believes they will recover in the long run. However, he expected the shift to more core and core-plus investments would be gradual.

One way to access these core funds and discounted traditional assets is through secondaries market…