Following in Singapore’s footsteps

In an effort to turn South Korea into a financial hub, the government has recently established a $20 billion investment fund modeled on GIC, the investment arm of the government of Singapore.

Since its founding in 1981, the Government of Singapore Investment Corporation (GIC) has grown to become one of the largest institutional investors in the world. Originally established to oversee the city-state’s foreign reserves, GIC has gone from managing a few billion dollars in assets to more than $100 billion (€85 billion) today. It’s an enviable track record that no doubt has sparked curiosity and envy among its regional neighbours – and now, it has finally sparked an imitator.

Earlier this summer, South Korea announced the formation of Korea Investment Corp (KIC), a new government agency designed to manage a portion of the country’s foreign reserves, the fourth largest currency reserve in the world – as its name suggests, KIC is hoping to follow the successful path forged by its neighbour to the south.

The move by South Korea, which comes at a time of increasing conflict between the government and foreign private equity firms such as Lone Star and Ripplewood, is part of a larger effort to not only expand the country’s holdings beyond foreign currencies, but also to transform the small, democratic country into one of the region’s financial hubs. Earlier this summer, Lee Kang-Won, the chief executive of KIC, told the Wall Street Journal that they anticipate reaching such a goal in the next five years.

KIC: having their cake, eating it too

Achieving that ambitious time frame will be a challenge, particularly given the growth in India and China and the strengthening economy of Japan. But South Korea, already a strong presence in the manufacturing and technology sectors, is not throwing pennies at the problem – KIC has initially been seeded with the tidy sum of $20 billion, $17 billion of which comes from the Bank of Korea and the remainder from the finance ministry. In October, KIC selected Prudential, who will set up their Asian headquarters in Seoul next year, to be the agency’s first asset manager – in exchange, the US financial services company will also provide investment knowledge and personnel training to KIC

In addition to the establishment of KIC, the government recently set up a 30-person task-force led by finance-economy minister Han Duck-soo to restructure the country’s financial regulations – the first meeting will take place at the end of this month. And in December, the finance ministry is planning a seminar to be attended by the chief executives of some of the world’s largest financial institutions. The goal: to attract worldwide interest in KIC.

With $20 billion at its disposal, attracting interest may not be such a difficult task. Living up to the precedent of GIC, however, may require a bit more time and effort.