S.Korean LPs to up exposure to private debt, infrastructure in 2023: Survey

South Korean institutional investors are eyeing private debt and infrastructure for stable income and to hedge against inflation, a survey by The Korea Economic Daily on their alternative investment plans found. A majority of them said private equity and real estate are more overvalued than private debt and infrastructure.

The survey was conducted in January of this year for Korea's 22 major institutional investors, including pension funds, mutual aid associations and insurers. Together they manage 2.11 quadrillion won ($1.59 trillion) in assets. Of the 22 investors, 20 manage 411.4 trillion won ($308.9 billion) in alternative assets.

Half of the respondents said they will increase exposure to alternative assets this year. Some 18.2% and 9.1% will hold and reduce the exposure, respectively, while the remaining didn’t respond.

In a multiple-choice question about asset class exposure allowing up to two options, they picked private debt and infrastructure the most to increase.

About 77.3% of the respondents thought private equity is highly or moderately overvalued. Also, 59% said real estate is overpriced.

Some 59% said private debt is fairly valued; some 40.9% said infrastructure is fairly valued, while 45.5% thought the asset class is moderately overpriced.

More Korean limited partners (LPs) picked deal sourcing as a critical factor when selecting general partners (GPs) this year. More than 59% of the respondents said the deal pipeline is very important when choosing an asset management firm, compared with 38.5% for the answer last year.

The survey also showed that Korean institutional investors value the presence of Korean investment relations staff when picking GPs – about 73% of the respondents think having a Korean IR employee is very important or moderately important.

The LPs’ preference for GP selection has remained similar to last year. They chose assets under management, size of funds raised, track record, risk management skills and speed of capital deployment as important factors.

Some factors such as knowledge transfer and the presence of a Seoul office were less important for GP selection, the survey found.

The asset owners have become more skeptical of emerging markets. More than 59% said they can’t invest in emerging market funds, compared with 34.6% last year. Around 32% said they can bet on such funds, similar to last year.

Meanwhile, more institutional investors have become more decisive on first-time funds this year, the survey showed. About 45% said they can bet on first-time funds, up from 27% the last year. Another 45% said they can’t, while about 35% answered they couldn't last year.

To view responses of individual institutions on their alternative asset allocation and fund manager selection, please visit Asset Owners Report.

Participants in this survey are as follows:

Public pensions and SWF

National Pension Service
Korea Investment Corporation
Government Employees Pension Service
Teachers' Pension
Korea Post (Insurance)

Mutual aids & associations

Yellow Umbrella Mutual Aid Fund
Military Mutual Aid Association
Public Officials Benefit Association
Korean Federation of Community Credit Cooperatives
The Korean Teachers' Credit Union

Insurers

Kyobo Life Insurance
Samsung Life Insurance
NongHyup Life Insurance
NongHyup Property and Casualty Insurance
Meritz Fire & Marine Insurance
Samsung Fire & Marine Insurance
Shinhan Life Insurance
Hanwha Life Insurance
Hyundai Marine and Fire Insurance
ABL Life Insurance
KB Insurance
KB Life Insurance

Write to Jihyun Kim at snowy@hankyung.com

Jennifer Nicholson-Breen edited this article.