Korean LPs seek different strategies for private equity, debt

Key asset owners of South Korea will keep their mid- to long-term plans for alternative asset management despite the current macroeconomic risks, as well as intensify their competitive edge to secure investment opportunities.

The limited partner panelists from National Pension Service (NPS), Korea Investment Corporation (KIC) and Teachers’ Pension (TP) shared their market outlooks and private equity and debt strategies at ASK 2022, The Korea Economic Daily’s biannual forum on alternative investment. The panel session was moderated by Kim Jang-moon, Korea Representative at Park Square Capital. 

The three LPs conducted remote due diligence for overseas alternative investments during the pandemic. KIC and TP found remote due diligence involves more investment professionals with the deals, thus accelerating their understanding of LPs and fund characteristics, compared with in-person due diligence. The two institutional investors will continue to combine virtual and onsite assessment in the post-pandemic era.  

The panels outlined their investment activities during the first half of 2022. NPS, the world's third-largest pension fund managing 948.7 trillion won ($750 billion) in assets, increased growth equity and private debt investments during the pandemic. It is proactively betting on private debts and secondaries this year, said Lim Sung-hwan, head of Americas private equity at NPS.

KIC is active in re-up this year, where LPs in previous funds commit to reinvesting in successor funds. The world’s 14th-largest sovereign wealth fund with $205 billion of AUM is reviewing general partners-led secondary investment proposals, said Ahn Seung-gu, senior director of the private equity team of KIC. It has already executed some direct secondary deals of high-quality assets, Ahn added.

Setting up the growth investment division last December, the fund is also stepping up venture and growth company investments.

TP, which had focused on secondaries, co-investments and fund of funds for stable cash flows, is gearing to increase buyout and direct lending strategies, said Jeong Young-sin, alternative investment head at the private teachers’ pension fund. The pension plan, with 24.5 trillion won of AUM,  is reviewing global top-tier asset managers’ flagship funds by assets, strategies and regions.

UNDERSTANDING LIMITED PARTNERS COMES FIRST

The short-term macroeconomic risks will have little impact on the LPs’ long-term PE and PD investment plans, the panels said. NPS won’t have a significant change in asset management plan but is focusing more on co-investment deals that will see limited impact from rate hikes, price rises and supply chain disruptions, Lim said.

KIC will prioritize selecting GPs that have well-established investment philosophy and discipline, strong track records in any phases of economic cycles and retain key people. Also, the sovereign wealth fund will focus on deal proposals that have robust business models and generate strong cash flow with high-quality assets, Ahn said.  

TP will intensify monitoring default risk in private debts and set up countermeasures for decreasing profits in private equity, Jeong said. The teachers’ pension scheme won’t aggressively invest in tech or healthcare as excessive trend-following could lead to significant losses, Jeong added.

On hiring asset managers, Jeong said GPs’ understanding of LPs is as important as pitching the GPs’ competitiveness to LPs. Most LPs pursue both upside potential and downside protection, and this is well represented in their investment principles and portfolio characteristics, Jeong said. He advised GPs to grasp LPs’ objectives and needs first and then suggest win-win strategies.

Write to Ji-Hye Min at spop@hankyung.com
Jihyun Kim edited this article.