Samsung Life eyes CPPIB-style stake purchases in GPs

Samsung Life Insurance Co. has drawn attention from South Korean pension and savings funds with its $90 million purchase last month of a stake in Savills Investment Management (Savills IM) to become the No. 2 shareholder in the latter.

Now, the country's largest life insurer is seeking to expand its equity investments into other alternative asset managers including private equity firms, according to investment banking sources. No further details were immediately available for its stake investment plans. 

The South Korean insurer's recent move follows in the footsteps of the National Pension Service's (NPS) equity investment of an undisclosed sum in UK private equity firm BC Partners in March of this year. It is also reminiscent of Samsung Life's pioneering role through its overseas investments among domestic institutions in the 1990s.

Their mountains of dry powder, or undeployed capital, and intensifying competition for lucrative deals have been forcing limited partners (LPs) to break from the traditional rules: LPs only select general partners (GPs) for capital allocation, enjoying the upper hand they have in relationships with the GPs.

"Skyrocketing prices from companies to real estate have made investments more tricky," a domestic pension fund's CIO told Market Insight, the capital news outlet of The Korea Economic Daily.

"To fill our portfolio with attractive deals, we need to belong to the LP group to which GPs provide the best investment terms. Acquiring a GP is one of the surest ways to do this."
 
Along with their equity investments in the GPs, both the NPS and Samsung Life have committed $1 billion to BC Partners and Savills IM, respectively. In its basic overseas investment plans released last year, the NPS announced a plan to buy stakes in global investment firms to strengthen its alternative investment capability. 

Samsung Life had 244 trillion won ($216 billion) in assets under management as of the end of March this year, of which fixed-income securities and equities made up nearly 80% in aggregate.

The Canada Pension Plan Investment Board (CPPIB) has already been at the forefront of the trend of LPs taking a stake in GPs. Back in 2015, the Canadian pension acquired Antares Capital, a North America- and lending-focused private equity firm, for $12 billion. Since then, CPPIB, or CPP Investments, has entrusted a big chunk of its lending investments to Antares.

"CPPIB operates a division tasked with acquiring investment companies, playing the role of a GP as well," said a Korean retirement fund's senior manager. "Domestic institutions, no matter how much money they have, cannot keep up with such an organization," he noted, referring to deal sourcing capabilities.

The Canadian pension scheme, with over $400 billion under management, also pioneered the system by which a pension fund builds an internal PEF team, hires relevant talent and brings PEF deals in-house.

Recently, AustralianSuper has reportedly joined the ranks of pension funds that set up an in-house PEF team. It is Australia's largest pension fund, with $38 billion in assets under management. 

"All those efforts are aimed at gaining the upper hand in the increasingly competitive PEF market," said another Korean retirement fund CIO. "LPs, who have so far been laid back thanks to their deep pockets, are now facing tough times."

In a period of prolonged ultra-low interest rates, PEFs sit on $2.7 trillion in dry powder globally, as of September 2020, according to Bain & Company. The number will likely more than double, if real estate and infrastructure are included, according to the industry sources.

Write to Jung-hwan Hwang at jung@hankyung.com
Yeonhee Kim edited this article.