NPS tilts toward top-tier PEFs during pandemic

The National Pension Service (NPS) has deepened its reliance on top-tier private equity firms during the prolonged pandemic situation, focusing on re-ups with its existing general partners because of the difficulty of conducting onsite due diligence.

The world's third-largest pension scheme has committed 61.2 trillion won ($53 billion) to 349 private equity and debt funds in aggregate as of the end of last year, excluding real estate, infrastructure and hedge funds, according to the NPS' disclosure of investment details on Wednesday.

The amount increased by 4.8 trillion won from the end of 2019. The number of the private equity and debt vehicles to which it has entrusted money was up by 23 during the period. 

Among PEFs, the $780 billion pension fund has allocated capital to nine funds of KKR & Co., eight funds of the Carlyle Group and seven vehicles of TPG Capital. 

The other global PEFs high on the list include Blackstone, CVC Capital, Permia and Silver Lake Partners, to which the South Korean pension fund committed capital via their four vehicles, respectively.

"As onsite due diligence became almost impossible, NPS focused on re-ups with the top three (PEFs) rather than looking for new managers," an asset management industry source told Market Insight, the capital news outlet of The Korea Economic Daily.

"If COVID-19 shows little signs of receding, NPS' reliance on top management firms will likely deepen further," he said.

The NPS also invested in three funds of Baring Private Equity, as well as two vehicles each of Bain Capital and BC Partners.

Among domestic PEFs, STIC Investments Inc. and IMM Private Equity were its top picks. The pension fund has invested in five vehicles of IMM Private Equity and IMM Investment Corp. combined; four vehicles of STIC Investments Inc.; three of each VIG Partners and SkyLake; and two of MBK Partners.

Of the committed capital to private equity and debt funds, 27.5 trillion won worth of investments, or 45% of the total, have been executed as of the end of 2020.

NPS' capital commitment as of the end of 2020
Asset Type	Number of Funds	Amount
Private Equity/Debt	349	61.2 trillion won
Real Estate	190	52.2 trillion won (North America with a share of 42.2%, Asia with 22.7% and Europe with 20.9%)
Infrastructure	185	38.2 trillion won (North America accounts for the single largest share of 24.3%)

 

Committed capital for which investments have been completed
Asset Type	Investment Amount	% of NPS' Completed Investments
Real Estate	29.07 trillion won	34.9%
Private Equity/Debt	27.51 trillion won	33%
Infrastructure	24.95 trillion won	29.9%
Hedge Funds	1.86 trillion won	2.2%

Private equity/debt investments by strategy
Buyout	56.4%
Credit/Mezzanine	10.3%
Distressed debt	7.5%
Secondaries	5.3%
Co-investments	5.1%
Venture Capital	4.9%

Overseas investments account for the vast bulk of the NPS' alternative investments, or 73% of the total. By region, the US was the top destination with a share of 21.2%, up 1.7 percentage points from a year earlier. Europe came second with 11.8%. 

In the first five months to May of this year, the NPS posted a 5.82% return on investments on average, led by equity investments. The average return from alternatives reached 3.54% during the period. 

Starting this year, the pension scheme began to disclosed investment details, including the fund names and investment amounts, as part of its efforts to boost management transparency.

(Correction: The numbers in the second table indicated the amount of capital for which investments have been completed as of the end of 2020.)

Write to Jong-woo Kim and Jun-ho Cha at jongwoo@hankyung.com
Yeonhee Kim edited this article.