Teachers' Pension eyes direct lending, PE with low leverage

Teachers’ Pension (TP) of South Korea will increase exposure to its overseas alternative assets, its Chief Investment Officer Lee Kyu-hong said in an LP panel session at ASK 2022 on May 18. 

For private equity and debt investments, the pension fund will select PE funds with relatively low leverage and PD funds with direct lending strategies, the CIO added. 

TP is a pension fund for Korean private school teachers and employees. It currently manages 22.7 trillion won ($17.8 billion) in assets and alternative investment reaches 5.2 trillion won.

Overseas investment assets amount to 2.9 trillion won, comprising private equity, debt, real estate and infrastructure. The pension fund makes overseas alternative investments normally via blind pool funds, with around $100 million of ticket size per fund.

The CIO said TP is seeking stable returns as a long-term investor, and its mid-to-long-term strategy is to continuously increase overseas assets, especially alternative assets overseas.

Despite the high valuations, interest rate hikes and supply and demand disruption, TP won’t have a big change in its alternative investment plans.

However, given rising market uncertainties, it prefers PE funds with relatively low leverages and PD funds with direct lending strategies, the CIO said. Also, it will have a selective approach to special situation fund investments, he added.    

Due to the travel restrictions in the COVID-19 era, the pension fund has focused on some global top-tier asset managers' flagship blind pool funds, having executed remote due diligence via its global partners first and conducting in-person due diligence later. TP will likely continue this practice in the post-pandemic era for on-site due diligence with higher standards.

The pension fund is strengthening its environmental, social and governance (ESG) investments. It declared to support climate finance with 112 other local financial institutions in March 2021, in pursuit of carbon neutrality by 2050 and integrating ESG factors in the investment decision-making process.

In its alternative assets, the pension fund has been expanding its proportions of electric vehicles and renewables via both project-based and blind pool funds. ESG factors will be increasingly important when it selects general partners, the CIO said.

Write to Si-Eun Park at seeker@hankyung.com
Jihyun Kim edited this article.