Kyobo Life bets on US direct lending, keeps watch on Europe

South Korea’s Kyobo Life Insurance Co. focused on US direct lending market this year given the rising probability of a European market recession, Kim Chan-woo, the insurer’s overseas alternative investment head, said during the LP session on private equity and debt at ASK 2022 on Oct. 26.

Kim said direct lending, with floating rates, can enhance profitability amid interest rate hikes and is relatively safer than other lending strategies.

Due to the geopolitical risks, the insurer is taking a conservative approach to Europe and eyeing the region’s middle-market senior debt without leverage, he added.

Kyobo Life managed 90 trillion won ($63.2 billion) in assets as of end-2021, including alternative investment making up 28%. Overseas assets account for 25% of alternative investment.

Global private equity and debt amount to 1.7 trillion won and 200 billion won, respectively. With an average ticket size of $50 million, the insurer prefers blind pool funds over co-investment and special memorandum accounts (SMAs).

Kyobo Life didn’t have a major change in its investment strategies this year, aiming for low earnings volatility and high profitability and maintaining a sound risk-based capital (RBC) ratio.

But it reduced exposure to alternative investment, characterized with illiquidity, due to uncertain market conditions such as the Russia-Ukraine war, interest rate hikes and prolonged inflation, Kim said.

Although the macroeconomic risks may impact private markets in the short term, the insurers’ portfolio companies in defensive sectors will be resilient, the overseas alternative investment head said.

He also warned some private debt funds may have worsened results, depending on the fundamentals of the industries or target companies.

In addition, the insurer strengthened overseas due diligence and global networks this year.

In April, Kyobo Life started to directly conduct overseas due diligence for new partnerships with global general partners; previously, it had its offices overseas implement the process on behalf of the headquarters in Seoul.  

The insurance company is also expanding networks with global investors by attending annual general meetings of limited partner advisory committees (LPACs), which consists of major LPs that joined the same funds.

It will continue to focus on senior debts next year, aiming for long-term stable revenue streams. The insurer will also look for opportunities in the secondary market in 2023 as more LPs plan to rebalance portfolios as well as secure liquidity, Kim said.

Write to Jihyun Kim at snowy@hankyung.com
Jennifer Nicholson-Breen edited this article.