Korean LPs receive massive capital calls from global funds

Pension schemes and savings funds in South Korea are busy responding to a flood of capital calls simultaneously from foreign investment firms which are cutting their reliance on bank loans for deal financing amid increased market volatility.

To meet the massive capital calls from private equity funds to real estate and infrastructure investment funds, the Korean limited partners are required to attend a series of conference calls and prepare the paperwork, according to investment banking sources on April 2.

Previously, alternative investment firms in general had made capital calls in two or three installments and used low-interest bridge loans from banks before closing a fund to boost internal rates of returns.

After the coronavirus pandemic forced banks to tighten credit, investment firms are returning to their LPs to cover the acquisition price.

The prospect of a reduction in the deal volume also spurred the increase in capital calls as investment companies sought to avoid a rise in unspent cash, or dry powder, said the sources who declined to give further details.

Meanwhile, domestic investment divisions of the pension schemes are struggling with the increased amount of uncommitted capital as they put on hold almost all new investments.

They are unlikely to put up new capital for domestic private equity funds anytime soon, given the policy efforts focused on supporting small businesses and decreased financing from financial institutions, the sources said.

Write to Dong-hun Lee at leedh@hankyung.com