[Editorial] What Is Needed to Hone KIC’s Competitiveness

The state-run Korea Investment Corporation (KIC) has been in the red since its establishment in 2005. The national wealth fund’s losses approximately amount to 10 billion won ($11 million) due to a slew of wrong decisions, including the huge investment in the Japanese bonds just prior to their drop. Despite the dismal track records, its employees including the CEO, auditors and workers received an average of 11.42 million won in bonus in 2006. The KIC was made to efficiently manage the foreign reserves and contribute to the nation’s advance as a Northeastern Asian financial hub. But the poor corporate governance and performance have obliterated the goals.

The Korean state fund recently decided to invest 2 billion dollars in Merrill Lynch, a decision worth our laud. But it’s just the first step toward the center of the global finance. Considering the fall of global investment banks’ stock prices amid the subprime mortgage crisis in the United States, the KIC is likely to reap some gains a few years later. Investment, however, is a science, not a play of luck. An investment unsupported by a thorough analysis of the target company and the market situations carries a high risk of failure.

The international financial market has become a battle field among various state funds spearheading the interests of each country to win financial hegemony. China belatedly set up the China Investment Corporation last September, a move much more belated than that of Korea. However, it is already rattling its powerful “China dollar” saber as it invested a huge amount of money in Morgan Stanley.

The nature of the funds managed by the KIC, or the foreign reserves of South Korea, makes it hard for the KIC to seek high returns for high risks. The Bank of Korea and the Finance Ministry, which own the KIC, have set forth picky guidelines and protocols to govern its investment decisions. The KIC has long legitimately complained that the ownership and complicated governing structure has made it hard to make swift position changes.

Nonetheless, the first one to blame is the KIC itself. Its performance and track records are way beneath the global status of South Korea as the world’s 11th largest economy. In the face of the undeniable facts, it has to be humble. It should hire top-notch brains in and outside Korea.

The government plans to raise the KIC treasury from the current $20 billion to $50 billion by 2010, and allow it to invest in overseas real estate markets. To manage the priceless tax money and to enhance the national wealth, the state-run fund has to prove that it is equipped with all the required credentials. Likewise, the supervising authorities should cut the red tape and bureaucratic thinking and mull over ways to beef up its capability. That’s why we badly need the real professionals.