Korean LPs tighten due diligence on general partners

In the wake of COVID-19, South Korean pension funds and insurance companies have placed a greater focus on asset managers' capabilities for post-investment management in the process of selecting general partners (GPs), said their senior alternative investment managers.

Investment philosophy, interest alignment and organizational and ownership structure also remain key elements in their due diligence.

"They showed large differences in their capabilities, attitudes and communication for post-investment management after COVID-19," said Shin Minsik, chief investment officer at Hanwha Life Insurance Co., during a limited partner (LP) panel talk on Oct. 16 at the global alternative investment conference ASK 2024.

"We're upgrading our due diligence questionnaire to tighten the process of verifying GPs' capabilities," he said.

Hyundai Marine & Fire Insurance Co. is also scrutinizing GPs' post-investment management after recently booking a loss from a mid-market credit fund managed by a top-tier investment firm.

"We're looking closely at GPs' workout and restructuring experiences and team structure," said Park Jun, Hyundai's senior alternatives manager during another LP panel session at ASK 2024.

The Korea Teachers’ Credit Union focuses on ownership structure and employee turnouts when choosing GPs, said Kim Hyungon, a senior manager overseeing its infrastructure assets.

Active communication and consistent research updates are other key considerations to make additional commitments to GPs' funds, he added.

Cho Yunsam, in charge of Kyobo Life Insurance Co.'s overseas alternative investments, said it will examine GPs' investment philosophy and investment process, saying: "What if a firm that said it focuses on company fundamentals is tracking markets?"

"We'll also look closely at their ownership and organizational structures, compensation systems and how stable their succession plans are," he noted.

The Military Mutual Aid Association prefers GPs with strategic consistency for same-vintage funds because it seeks to lower investment volatility through alternatives rather than seeking higher yields, said Pai Hongkyun, a senior investment manager at the retirement fund.

Lotte Insurance Co. points to communication transparency and accurate, regular updates on investment performance as key criteria for its GP selection, said Park Jaehyun, managing director of its financial investment division.

COMMITMENT TO BLIND POOL FUNDS

Korean large asset owners will continue to increase their allocation to external managers amid a dearth of in-house portfolio managers.

"We will invest through blind funds managed by specialized GPs, rather than approaching on a project basis," said Hyundai's Park.