Below is the transcript of a CNBC Exclusive interview with Korea Investment Corporation CEO Heenam Choi. The interview was first broadcast on CNBC's Squawk Box Asia on 23 September 2019. The interview took place at the Singapore Summit. If you choose to use anything, please attribute to CNBC and Amanda Drury.
Amanda Drury (Mandy): Mr. Choi it's a pleasure to have you with us today at the Singapore Summit.
Heenam Choi: My pleasure.
Mandy: Thank you. Well let me get started. When you became chairman in March of last year you said you wanted to increase the KIC's AUM to over 200 billion dollars to make one of the top sovereign wealth funds do you think. Where are you in that process?
Choi: Oh I miss the target a lot. Uh reaching the around 200 billion USD. I announced that I want to achieve that target by 2021. By now currently we are very slow. Around 150 billion U.S. dollars. So. Five hundred-fifty billion U.S. dollars short.
Mandy: What has been the main reason for that shortfall?
Choi: For is that uh obviously uh we are supposed to have more clients. In Asian to Bank of Korea and Ministry of Finance. But still we are working on to devise our KIC loss to embank other clients like Korea. There are many Korea pensions teachers pensions polices pages. So we try to work hard to invite those clients. But to do that we need to change our law so it takes time.
Mandy: When you say you need to change the law is there at the moment any efforts to change the law.
Choi: Yes. The revised role was surpassed submit to the national Assembly now. The National Assembly gonna discuss during this regular session. I hope.
Mandy: You've lost a three point seven percent your overseas investments in 2018. How do you feel that 2019 is comparing so far in performance?
Choi: Yes. In terms of performance this year we are quite happy because we are for the more than more than 10 percent of the return up to and all of us. So it was quite all changed but last year mainly due to the U.S. market situation. We lost some of the so but anyway. So we did some kind of take actions to change our mindset. That is the we up to last year our management performance was based on our excessively tough. But from this year we need to consider a kind of absolute details to preserve a capital base so absolutely return and excessive it does. Our performance targets. So you gonna make every effort to preserve our capital base.
Mandy: So you've changed strategy.
Choi: Yes. Yes.
Mandy: What would you say is the biggest challenge in this year so far? There are a lot of things: trade tensions, rising protectionism, volatile markets. What do you feel is your biggest challenge?
Choi: All of them and all over then create market uncertainty to make us you know very difficult to manage our asset. So especially trade war between two big countries G2 countries make our markets quite volatile. So as a long term investor. Actually we tried to manage those short term volatile but obviously it negatively affects our returns. So we suffered a lot but this year it looks OK.
Mandy: When you mentioned the trade war or trade tensions and let's call it that. There are a number of them around the world at the moment between US-China, between Japan and Korea. Which one affects you the most?
Choi: Of course the global trade tension between China and the U.S. Yeah but the trade tension between Korea and Japan is so it looks local but uh maybe in the long run on maybe you could have a big effect because it might disrupt global value chains especially in high technology sector. So you know South Korea you are really worried about that kind of trade tension between countries.
Mandy: So it has factored into the decisions that you make about where you invest and what kind of industry you invest in.
Choi: Not yet. So we are going to look at what happens in the future. I mean with regard to the tension between two countries. Obviously we are preparing and I'd like to be more to be more flexible in terms of asset allocation. But the trade tensions between Japan and Korea we have to see but it happens also in Korea could even go on take some measures in the short term. They already took steps to support the local funds to avoid the escape. The short term result from our trade dispute between two countries but in the long run or South Korean government tried to you know announce they announced already fundamental solution to boost competitiveness in the equipment material sectors. So you're going to manage to overcome the difficulties.
Mandy: Yes. And lawmakers have proposed I understand the strain that KIC from investing in Japanese firms that have links to war time slave labor. How have you responded to that?
Choi: I think that there is another as some special case. The National Assembly going to discuss it but I don't know. I can't tell by the you know the what will be the result but I'm not quite sure about this.
Mandy: What is your feeling about whether or not you might cut ties with the Japanese firms?
Choi: As all you know Japanese firms are including our benchmark. So in some sense we have benchmark player. So it is inevitable to you know to invest in Japanese companies.
Mandy: So you wouldn't think of cutting ties with them?
Choi: I'm not quite sure if the law you know law is enacted like that or you know government. So here you have to. Yeah.
Mandy: It certainly highlights a trend worldwide for companies and investment vehicles to be more socially responsible.
Choi: Yes. Yes.
Mandy: focus more on ESG where they invest weather its overseas or locally. Does something like this make you go back to the drawing board and think how can we be more socially responsible as well.
Choi: Yes guess I could tell was what I did last year and this year. Last year KIC established sustainable stewardship principal or so you know we selected ESG managers. And this year again KIC and government issue its first sovereign green bond. KIC is making firm investments for green projects also this year. We're going to try to actually working on how to integrate ESG factors into our portfolio and into our internal investment process. That is what we are doing now. So by doing that I think can contribute to kind of sustainable development in the world. Yeah.
Mandy: I understand one of your other recent changes in direction or perhaps a refocusing of direction is to invest more in alternative investments.
Choi: Yes. Yes.
Mandy: Infrastructure and Real Estate. Where in the world do you see good value to invest in infrastructure investing?
Choi: In infrastructure or real estate still we think that the U.S. is so good you know good promising reason but also we try to look at the region like ASEAN and India. Well of course Australia. But ASEAN and India regions, we lack local knowledge. So we try to you know look for our partners work with the local knowledge. So by working together with them we want to seek some investment opportunities in the region.
Mandy: Have the recent Hong Kong tensions which have put a downward pressure in commercial and residential. Yeah sure. Yeah. Does that provide an opportunity to invest in real estate?
Choi: In some sense that kind of situation might provide some you know good investment opportunities. But at this stage we cannot say that because of our high uncertainties in Hong Kong market. So you have to wait and see what they happen.
Mandy: So when you look at the outlook for the world we have so much uncertainty. You mentioned that at top of the interview. How confident are you that things will work out for the best in the next year?
Choi: Let me narrow our focus on U.S. China trade tension. I think the tension is based on who will lead that the global leadership and also about the high tech sector. So it is not easy to reach a consensus but on the other hand I can think that there is still some strong incentive for both sides to reach consensus because that tension is not winner takes all game. It might be lose-lose games. So why not? So they want to make in the end and make a compromise on some in some area. So on trade tension even though it looks ugly. But I'm a bit optimistic about that and other situations like the geopolitical tension. No it's not easy to solve because it is based on idiosyncratic you know country interest. So it cannot be solved this easy. So it may last longer and longer the trade tension between US and China.
Mandy: I see with the latter you're referring to between in South Korea and Japan. You say it may last for a long time. How long is long.
Choi: It's just started. So I personally think that uh two countries always have some strong incentive because Japan and Korea plays a very important role in global supply chain. So both continue want to disrupt the global value chain and so they're going to be soon they start talks. So I think that during this discussion they can reach some compromise.
Mandy: You've mentioned your local industries a number of times such as high tech industry Certainly one of the maybe unintended consequences of the US China trade war is that it is starting to speed up China's efforts to build its own local industry its own ecosystem.
Mandy: In areas such as high tech. Does that pose a threat to careers in tech industries in other industries?
Choi: Yes. In some areas I sense that China try to build on its capacity because they want to be independent from the global value chain. So in that case if that is the case they might hurt our industry in terms of high tech area
Mandy: So what can South Korea do to mitigate that?
Choi: It's not the easiest solution but the only solution is to you know you know develop a technology level to be the leading you know leading innovator then you can overcome any difficulties.
Mandy: So you could argue that it is in both China both Japan and Korea best interests to find a resolution to deep rooted sensitivities and in some cases animosities. Is that more important than trying to preserve the economic ties?
Choi: I think the preserving economic ties is important because both countries are you know important players in global chain. So you know without hurting their status is very important. We have to make it in order not to you know hurt that kind of you know status both country should make every effort.
Mandy: Thank you so much. My pleasure.
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