Yup Kim is a senior portfolio manager of Special Opportunities at the Alaska Permanent Fund Corporation, a $55 billion sovereign wealth fund. The flexible mandate, which represents 20% of the Fund’s assets, centers primarily on situations stemming from supply and demand imbalances, capital flight, structural complexities or unique opportunities with asymmetric payoffs. The portfolio covers a wide spectrum including direct deals in venture capital and private equity transactions, GP co-investments and strategic stakes and partnerships with investment management firms. Most recently, Yup was a vice president and investment committee member at DB Private Equity and previously worked at Performance Equity, Silver Point Capital and Citigroup. Yup holds a B.A. in Economics from Yale University.
Yup was recently named to Trusted Insight’s ranked list of the Top 30 Sovereign Wealth Fund Rising Stars. He graciously shared his thoughts on a number of topics.
In this interview you will learn about the structure and dynamic of Alaska Permanent Fund’s private markets team, the advantages and disadvantages of operating from Alaska and the unique ability of sovereign wealth funds, as an industry, to embody their country’s values – and potentially be hindered by them. The following interview has been edited and condensed for clarity.
Trusted Insight: You began at Citigroup, moved to a hedge fund at Silver Point and then to private equity at Performance Equity and Deutsche Bank before coming to Alaska Permanent. What attracted you initially to finance and the investment world?
Yup Kim: My childhood experience in an emerging market non-profit environment cultivated my keen interest in development economics which led to my first stint at Citigroup’s Hong Kong office working on trade and project financing deals with entities like the Asia Development Bank and the World Bank (IFC). Despite its negative media wrap, I soon realized that in the right hands, finance was a powerful tool to spur growth, increase real wages and enrich the lives of the 99%, not only those at the top.
Today, what I find unique and fascinating about investing is that everything you consume on a daily basis – every city you visit, every book you read and every conversation you have – can inform your investment decision and help you become a better investor. Being an investor requires synthesizing large amounts of information to predict what the world might look like in one, five and twenty years, and it has been as fun as it has been rewarding. You’re able to, in a small way, dictate the flow of capital to forge what the future might look like.
Trusted Insight: You’ve seen the industry from a number of unique angles – banking, hedge funds, private equity, now a SWF. Tell me about how those experiences and how they’ve informed your current investment philosophy and outlook on the markets.
Yup Kim: My background across various investment firms has offered me some insight on the relative risk-reward tradeoffs across a wide range of strategies. I began my career in credit, which conditioned me to be fairly risk averse and to constantly ask myself, “What could go wrong?” Later, I realized that investing need not be all pessimistic and began to back capable management teams leading companies enjoying strong, hockey-stick like growth, looking to disrupt industry incumbents. While the different experiences allow me to pursue opportunities across the risk spectrum and capital
structure, capital preservation remains its most important lesson, and it is critical to every decision I make. The market plunge of 2007-2009 reminds me to stress test each opportunity against a recession or a prolonged risk-off climate, which is becoming increasingly relevant in today’s environment.
Trusted Insight: Can you elaborate on the Alaska Permanent investment team and your role within it?
Yup Kim: The private markets team at APFC includes five team members and covers a broad remit across private equity, special opportunities, infrastructure, private credit and absolute returns - we’re set to hire two new senior associates, which we’re thrilled about. Simply put, our mandate is to add uncorrelated alpha to the broader portfolio. We have an experienced, collegial team with deep backgrounds in both partnership and direct investing, which is essential to what we do. Given our small team, we’re required to wear many hats.
Our private equity mandate requires us to be specialists, while the special opportunities mandate requires us to be nimble generalists. In special opportunities, we try to proactively source deals using a themes-driven approach, but not all deals fit into neat labels, which requires flexibility. Overall, intellectual curiosity and the willingness to quickly learn to gain conviction remains critical in this seat and really drives our culture.
Trusted Insight: What challenges do you face in your current role and in this current market environment?
Yup Kim: Resource constraints remain a challenge, but I am thankful to our leadership and board for thinking long-term and expanding our personnel and organizational capabilities.
Being located far away from the center of deal flow has its obvious disadvantages, but it’s worth noting that being away from the buzz and reaffirming soundboards in a hot market helps you form an “outsider's” perspective and exercise better valuation discipline.
The artificial asset inflation caused by accommodative monetary policies around the globe has trickled down to private assets, and that’s certainly been the most challenging part of investing in the current market environment.
Trusted Insight: What sectors and geographies are you optimistic about in 2017?
Yup Kim: It’s been a challenging time to invest. Overall, I think 2016 may be an underperforming vintage year – I’m hoping for some volatility ahead of 2017.
I think most geographies and industries have their share of asymmetric, niche pockets of growth. That being said, in the emerging markets, we’re taking a long-term overweight view in India and Brazil, driven both by the demographic growth and consumption basket upgrade story.
While certain technology and life sciences companies command rich valuations in the public markets, we continue to selectively invest in these areas on an earlier stage basis.
Trusted Insight: What characteristics comprise a good manager or management team? (Outside of the standard criteria: repeatable process, proven track record, likeable team)
Yup Kim: Integrity and the spirit of partnership – I think it’s increasingly clear who views us strategically and treats us as real partners. I appreciate managers who exhibit humility and emphasize alignment.
Being an investor requires synthesizing large amounts of information to predict what the world might look like in one, five and twenty years, and it has been as fun as it has been rewarding. You’re able to, in a small way, dictate the flow of capital to forge what the future might look like.
Trusted Insight: What medium- to long-term trends are shaping how Alaska Permanent invests that are unique to sovereign wealth funds?
Yup Kim: There’s a deeper appreciation about our ability to leverage the stability and scale of our capital base. Given the absence of a ticking clock to satisfy an annual liability stream, we’re able to pursue opportunities which require the resilience to stomach short-term volatility, those which require a longer-term, ten plus year investment horizon or those that don’t fit neatly into an asset class category. As it relates to our scale, we’re able to be more assertive and negotiate beneficial terms and better risk-adjusted return matrices through enhanced term sheets or investment structures.
Additionally, while not unique to SWFs, there’s a deeper focus and recognition on the importance of building strong investment exposures outside of the U.S. and Western Europe.
Trusted Insight: What sets sovereign wealth funds apart from other institution types?
Yup Kim: Given their source of wealth from natural resources and trade surplus, SWFs typically enjoy a more permanent capital base with the ability to better weather short- to medium-term volatility. SWFs continue to expand in size and importance, and as a result, have had the resources to build an increasingly sophisticated in-house team.
Given their massive scale, SWFs also have the unique ability to export their countries’ values through their investments (energy sustainability in Norway, for example), which can dictate what assets and technologies get funded or divested as a reflection of their home country’s core set of beliefs.
Finally, certain influential SWFs may encounter increasing hurdles when making investments abroad based on their home country’s foreign policy agendas and the ongoing geopolitical climate.
Trusted Insight: What advice would you give to someone attempting to enter the institutional investing industry?
Yup Kim: Stay curious – be a voracious reader. Investing well goes beyond understanding financial theory and following markets. Equally important is understanding geopolitics, legal and judicial frameworks, economic history, demographic trends, human psychology, biological sciences, disruptive technologies, big picture themes, and connecting all the dots. Stay humble and treat everyone with respect – institutional investing is a people business and emotional intelligence is essential. Be patient, don’t overreact to market noise and don’t get emotionally tied. Love what you do.
To learn more about sovereign wealth fund investing, view the complete list of Top 30 Sovereign Wealth Fund Rising Stars.