NPS makes strategic investment in BC Partners with Blackstone

The National Pension Service has made an investment in BC Partners by acquiring a stake in the UK private equity firm through a Blackstone fund, according to investment banking sources on Mar. 21.

Additionally, the South Korean pension fund signed a strategic partnership with BC Partners to co-invest in deals sourced by the Lonon-based PEF. The NPS has allocated around 1 trillion won ($887 million) to their joint investments, for which it deployed an employee to BC Partners. 

Back in 2019, the NPS had committed several hundreds of million dollars to a Blackstone fund that buys stakes in global investment firms, or general managers (GPs), including BC Partners. 

In the same year, Blackstone's strategic capital group acquired a 10% stake in BC Partners for 500 million euros ($595 million). 

The strategic partnership with BC Partners is part of the $740 billion pension scheme's efforts to bolster deal sourcing capabilities for overseas alternatives. 

As a shareholder and partner of BC Partners, the world's third-largest pension fund will be provided with co-investment opportunities and allowed to share profits of buyout transactions, without paying management fees to the PEF.

NPS' deal-sourcing pipeline

1. Equity investments in global GPs

2. Strategic partnerships with global GPs and pension funds

3. Big-ticket investments

Founded in 1986, BC Partners manages 33 billion euros across private equity, credit and real estate investments. It has invested in 118 companies, which have a combined value of 150 billion euros. In the buyout segment, it competes with Blackstone, KKR & Co. and The Carlyle Group.

The NPS has deployed 60 trillion won worth of overseas alternative investments to 160 asset managers. Regarding BC Partners, the NPS committed 200 million euros to its 10th buyout fund that raised 7 billion euros in 2017 and participated in BC Partners-led co-investment projects.

In addition to investment outsourcing, NPS Chief Investment Officer Ahn Hyo-joon stepped up efforts to form partnerships with global GPs and pension funds to make co-investments and maximize investment returns. 

His efforts gained momentum after NPS Chief Executive Kim Yong-jin was installed in August 2020. Kim said the pension fund will make equity investments in global asset managers and increase the size of investments to access prime assets, during a speech at the global alternative investment conference ASK 2020 hosted by The Korea Economic Daily in October 2020. 

Compared to the typical hundreds of millions of dollars it committed to overseas funds, the NPS bumped up its allocation to co-investment vehicles established with pension funds and GPs. 

NPS' co-investment vehicles set up with global investors in 2020
Investment partner	Details of partnership	Investment targets
Dutch pension fund manager APG	Co-investment partnership worth several billion dollars	Toll road operator in Portugal; student housing in Australia
Germany's Allianz	$2.3 billion JV	Landmark office buildings and logistics and residential facilities in gateway cities in Asia
US real estate investment firm Hines	$1.5 billion JV	Upgrading run-down properties in core locations to increase value

The NPS is aiming to sharply increase allocations to overseas investments and alternatives in an effort to delay the fund's depletion. It is projected to turn to a deficit from 2041, after peaking at 1,777 trillion won.

NPS' five-year average returns
Overseas investments	10.06%
Domestic investments	3.69%
(Source: NPS)

NPS' allocation plans in proportion to total assets
	As of end-2020	2025
Overseas investments	36.5%	55%
Alternative investments	10.9%	15%
(Source: NPS)

Going forward, the NPS is expected to expand equity investments into GPs specializing in infrastructure and other alternative asset classes to increase the chances of securing hot deals globally.

"The NPS used to be just a big pension fund. Now it is cleverly leveraging its scale, its greatest competitiveness, to enhance global investment capabilities," said one of the banking sources.

(Correction: The NPS' stake purchase of BC Partners was made through the Blackstone fund. The Korean pension fund signed a separate partnership with the London-based PEF to explore co-investments, for which the NPS has allocated around 1 trillion won.)

Write to Jung-hwan Hwang, Jun-ho Cha and Chang Jae Yoo at jung@hankyung.com
Yeonhee Kim edited this article.