Scott Kalb, chief investment officer of the $38 billion Korea Investment Corporation, says that since he joined the sovereign wealth fund in early 2009, he has been trying to drive the organisation to diversify its benchmark risk and currency risk. “We have some advantage because at least my sponsors [the Korean Government] can relate to the developing markets story,” he said. “But in many cases, our benchmarks move us away from the fundamentals of emerging markets.” He said that he spent a lot of time thinking and worrying about benchmarks. “You have to think what kind of risks you’re using benchmarks for. For example, if your aim is to make money, then it’s assymetrical. It pushes you to be backward-thinking. “Rebalancing is a good discipline but you want to avoid being a slave to the benchmark. You just want to use it as a guide.” Another theme for big funds, and probably a frustration for smaller ones, is the development of in-house investment capabilities.

Two of the Canadian funds at the roundtable, the British Columbia fund and Ontario Teachers’ Pension Plan, have recently recruited Asian specialist analysts to work as part of their Canadian-based teams. The Hong Kong Jockey Club has hired two engineers to work as part of its private equity team to help their understanding of some of the underlying investee companies. But Jacob Tsang asks: “How do we compete? It’s a nice concept – to build up investment resources – but at the end of the day, how do you get the budget for it? We are competing with the industry. It’s always been a problem for the buy- side.” KIC’s Kalb says that there is a big gap between what many pension funds can pay their investment professionals and what they can receive from funds managers. “At the moment, one of my staff could get four times his salary by walking across the street,” he says. “But if I can narrow that to two times, I can work with that.”

Nevertheless, he predicts that the KIC’s current staff of 90, including 60 investment staff, would grow to about 500 over the next 10 years as the fund grew its assets. “I hope we’ll have many more internal alpha-generating capabilities, whereas now we’re demanding better beta management. I’d like to see internal alpha managers but you have to pay for that, whether it’s internal or external.” Kalb flags another theme for very big funds: working together on direct investments. He described the recent US$1.6 billion energy deal in the US – during which KIC worked with co-investors Tamasek of Singapore, CIC of China and the Abu Dhabi Investment Authority – as a “landmark deal”. “I welcome the opportunity to co-operate with any of you,” he told the audience.

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