Korean pension funds ramp up co-investment to seize good deals

South Korea’s pension funds are increasing co-investment as the COVID-19 is prolonged. They are attempting to solve difficulties in overseas due diligence and seize investment opportunities in rapidly changing market environment.

Co-investment is made when a general partner (GP) that established existing blind funds or project funds request additional investment from a limited partner (LP) when the GP carries out investment, which exceeds a limit. As a blind fund can invest up to 20-30% in one deal in general, they raise a part of the shortfall from the LP.

The investment provides the LP opportunities for additional profits as it usually exempts a part of extra fees on management and performance.

The country’s pension funds, which have to go through internal approval process, often miss investment chances when an investment is too small or its deadline is too tight. Some of them established separate funds and outsourced decision-making process to capture investment opportunities quickly.

NPS, KTCU, POBA

The National Pension Service (NPS) and the Korean Teachers’ Credit Union (KTCU) are aggressively taking such measures.

The NPS has recently revised internal regulations to authorize its working-level officials to proceed co-investment and investment derived from project investment.

It raised a co-investment fund, which was set up in 2017, by 50% to 600 billion won($520.4 million) in four years. The fund is for co-investment with NPS-backed blind funds.

The KTCU also established a co-investment fund with Hanwha Life Insurance, investing $100 million, about a half of the total. Hanwha Asset Management Co., a GP, manages the fund. This year, the KTCU invested $250 million each in co-investment fund established by global private equity investment firms HarbourVest and StepStone Group to create a fund worth a total $500 million. The KTCU plans to set up a separately managed account (SMA) to explore investment opportunities.

The country’s Public Officials Benefit Association (POBA) followed such moves. POBA recently started to establish $200 million co-investment fund each in private equity investment and infrastructure. It decided to set up a SMA fund to join co-investment proposed by AXA Investment Managers for investment in bio research facilities.

Write to Jun-ho Cha and Jung-hwan Hwang at chacha@hankyung.com
Jongwoo Cheon edited this article.