South Korea’s $206.5 billion sovereign wealth fund is standing by US Treasuries as a core holding, undeterred by recent market volatility.
“We are happy to invest in US Treasuries in a sense that the bonds give very strong liquidity and stable returns,” regardless of short-term market volatility, Park Il Young, chief executive officer of Korea Investment Corp., said in an interview with Bloomberg.
Park’s remarks underscore the enduring appeal of US assets for long-term investors such as sovereign wealth funds, even after recent bouts of volatility have undermined their allure. Uncertainties over President Donald Trump’s trade policy and ballooning fiscal deficits have roiled the Treasury market and pushed a gauge of the dollar down more than 10% from a January high.
Investors have been diversifying exposure as a long-term trend, and it’s unlikely that the Trump administration’s policies will shake the dollar’s status as a key reserve currency, he said.
“As for the weight of UST in our portfolio, we don’t have any plans to change it yet. We don’t have any specific plans. Basically, the nature of bond investment is to secure stability and liquidity,” Park added. The fund does not give out details of its Treasuries holdings.
Despite the turmoil in financial markets, foreign investors’ holdings of US Treasuries held close to a record high in April, latest data showed. Japan and Britain raised their holdings, while China and Canada cut their exposure, the data showed.
Read: Foreign Treasuries Holdings Held Near a Record in April Turmoil
While Park acknowledged potential risks to fixed-income investments stemming from inflation and shifts in US fiscal and interest-rate policy, he also expected continued efforts to stabilize interest rates.
America’s rising debt and deficit, a downgrade by Moody’s Ratings and Trump’s massive budget bill are further clouding the outlook of the world’s biggest economy.
That puts investors from Asia, including institutions like KIC, at the center of efforts to finance America’s deficits, particularly through sustained demand for Treasuries, a critical pillar of US economic stability.
KIC held nearly 64% of its public assets in North America as of end-2024, up from from 61.1% in 2023. The sovereign fund, which returned 8.49% last year, only invests in overseas assets.
Park, who took the helm in September, is under pressure to improve the fund’s performance. During a parliamentary audit last year, lawmakers criticized KIC for lagging behind its peers. Norway’s sovereign wealth fund, Norges Bank Investment Management, posted a 13% return last year.
One of KIC’s strategies has been to ramp up private and alternative investments, especially in the US, to cushion against public market volatility. The fund plans to expand its New York office staff by 30% to about 30 by year-end, and is preparing to launch a new US-focused alternatives fund.
About 21.9% of KIC’s investments were in alternative assets last year, and the fund plans to increase that ratio to 25% over the medium to long term.
“Private credit and infrastructure — which currently make up smaller portions of the alternative asset portfolio — are less sensitive to the economic cycle and could help generate stable return if we increase investments,” said Park, who previously held positions at the World Bank and the country’s Finance Ministry.
In its 2024 report, KIC said alternative assets delivered an annualized return of 7.68% since it started investing in the relatively new asset class — starting with private equity in 2009, real estate, hedge funds and infrastructure a year later. It only discloses yearly breakdowns for traditional assets.
An India office that KIC opened last year is part of a gradual effort to help diversify its assets, according to Park. While the market has huge potential thanks to its booming middle class, it can be a challenging market for outsiders, he said.
“It’s not a place where you can buy cheap and sell high,” Park said. “KIC is focusing on expanding network and not rushing, given that even partners with over 20 years of experience in the country have struggled.”
With assistance from Alex Chandler, Eudora Wong and Yoolim Lee.
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