Private debt, infrastructure remain top picks for Korean LPs in 2024

Private debt and infrastructure will remain South Korean institutional investors’ favorite alternative asset classes for the second straight year in 2024, a survey by The Korea Economic Daily found. Real estate was shown to be the least favored, although global property is considered fairly valued or even undervalued. 

Some 47% of the surveyed limited partners (LPs) will increase exposure to alternative investments, while 13% will hold and cut the exposure, respectively.

The Korea Economic Daily conducted the survey in December 2023. A total of 15 institutional investors – five pension funds, three mutual aid associations and seven insurers – responded with their asset allocation plans, general partner (GP) selection standards and market outlook.

The 15 institutions are estimated to manage more than 2.12 quadrillion won ($1.59 trillion) in assets as of the end of 2023, with 20.7% for alternative investments. Overseas assets make up about 65% of their alternative investments.


Some 46.7% of those polled said they will increase the proportion of alternative assets this year, while 13.3% said they will maintain or decrease the proportion, respectively. Some 26.7% didn’t respond or said they are yet to confirm their plans.


Among choices of where to increase investment, private debt and infrastructure were the surveyed top picks for two straight years – respondents could pick up to two choices and those two asset classes each won six votes. Private equity received five votes, followed by real estate with only two votes.

Institutional investors prefer to increase exposure to private debt due to high interest rates and less strict rules for mark-to-market compared with other asset classes, said Hanwha Life Executive Director and Chief Investment Officer Shin Min-sik.

“Investors should be careful that private debt has rapidly expanded at low rates since 2008 and has not experienced severe stress yet. Also, private debt investors' positions have weakened as covenant-lite has been more common amid fierce competition for deals. Higher-for-longer rates could worsen the credit risks of speculative-grade companies. So, it would be difficult for investors to continue to increase exposure to private debt at the speed at which they have done so far,” Shin explained.

“Investors have been eyeing overseas infrastructure as there are not many domestic assets, and this trend will continue. It is difficult for Korean investors to bet on senior loans in overseas infrastructure due to low yields; rather, they will keep an eye on equity in qualifying infrastructure, which provides high capital efficiency,” he added.

About 67% of the surveyed institutions said global private debt is fairly valued; only 13.3% answered that it is overvalued. Some 40% of the polled institutions said global infrastructure is fairly valued, while 33.3% answered it is overpriced.

Some 40% of the surveyed LPs said global private equity is fairly priced, while 33.3% saw the asset class as overpriced. Although 40% and 33.3% said real estate is fairly valued and undervalued, respectively, property was the last choice of the LPs.



While competition for LP commitments is intensifying, GPs’ track record, risk management and deal pipeline remain the most important standards for LPs’ asset manager selection.

About 87% of those polled said track record, risk management ability and deal sourcing are the most important, respectively. 

The second most important standards for GP selection are assets under management, speedy capital deployment, transparency and clawback clauses, which scored about 73.3%, respectively.

Some 66.6% said the presence of Korean investor relations staff is important. But whether the GP operates its Seoul office is not that important to LPs – only 20% of the surveyed institutions said it is important.

A reasonable fee structure in asset management is also a critical factor for building a GP partnership. Some 66.6% said the fee level is an important standard.


For Korean IR staff, a good understanding of financial products is the most desirable virtue, followed by thinking in the shoes of LPs. The two factors won eight and seven votes, respectively.

Integrity and communication skills received six and five votes, respectively. Korean IR staff’s influence in the management firm is not highly valued – it received only one vote.

Some 46.7% of the surveyed institutions said the presence of local fund of funds managers is important, compared with 20% who said it is less important and 26.6% unimportant. For the most important values of local FoFs, product understanding topped with eight votes, followed by communication skill with six votes, thinking in LPs' shoes with four, and experience in strategy and fee structure both won three votes.

For quality of placement, some 33.3% said it is important, while 40% and 20% responded that it is less important or unimportant. 

Korean LPs seek currency hedges amid fluctuations in exchange rates, the survey showed. About 53.3% said they need currency hedging, while 33.3% think it depends. Only 6.7% said they don't need it.

Like last year's survey, 40% said they could invest in a first-time fund, while 40% said they couldn't. Some 13.3% responded that it depends. 

The LPs have become more indecisive on emerging markets. Some 26.7% said they could invest in an emerging market fund, while the same percentage of those surveyed said they couldn't and 40% said it depends. Last year, about 59% and 32% gave positive and negative answers, respectively.

Most Korean LPs take two to three months to decide on commitments. About 80% said so, while 6.7% chose one to two months and more than three months, respectively.

To view the detailed responses of each institution on their alternative asset allocation and fund manager selection, please see the Asset Owners Report.

The 15 surveyed institutions are as follows:

Public pensions and SWF

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

Mutual aid associations

Military Mutual Aid Association
Korean Federation of Community Credit Cooperatives
The Korean Teachers' Credit Union

Insurers

Kyobo Life Insurance
Samsung Life Insurance
Samsung Fire & Marine Insurance
Shinhan Life Insurance
Hanwha Life
ABL Life Insurance
KB Insurance

Write to Jihyun Kim at snowy@hankyung.com

Jennifer Nicholson-Breen edited this article.