NPS beefs up investments in growth PEFs in 2020

The National Pension Service boosted investments in private equity deals involving high-growth internet and software companies last year, while diversifying into medium-risk, medium-return assets such as private debt, according to its public disclosure on Tuesday.

In the real estate and infrastructure sectors, it focused on A-grade office buildings and highways, which show less vulnerability to the economic fallout of the global pandemic than other segments.

For all of last year, the South Korean pension scheme added 15 managers – six private equity houses, five real estate firms and four infrastructure investment managers – to the pool of its global alternative investments. As of the end of 2020, a total of 160 global alternative investment companies managed a combined 65 trillion won ($58 billion) on behalf of the $742 billion pension fund.

Last year, the NPS committed a total of 23 trillion won to overseas alternative investment funds, its biggest commitment for cross-border alternative assets in a single year. They included co-investments with its existing general managers and follow-on investments in their subsequent funds, including new flagship funds launched by Blackstone, KKR and technology-focused Silver Lake Partners.

In the private equity sector, it has ramped up investments in deals involving technology companies by adding Insight Partners, Six Street Partners and Thoma Bravo as new managers.

The three PEFs are known for nurturing startups to reach unicorn status and divesting through an IPO or a stake sale. Insight Partners had invested in Korean unicorn companies, including the food delivery app Baedal Minjok, the e-commerce platform TMON Inc. and the startup holding firm Fast Track Asia. Both Six Street Partners and Thoma Bravo have logged annual returns of 20-30% on average from investing in technology companies.

       Asset managers that received NPS mandates for the first time in 2020

Asset Class	Asset Management Firm	NPS's Commitment	2020 Major Investments
PEF	Antares Capital Advisers	Q1	US middle-market lending such as private debt, CLO
	Insight Partners	Q1	Growth-stage Internet, software companies
	Select Equity	Q1	Hedge fund: long-short, or long-only strategies
	Six Street Partners	Q2	Investing in or lending to growth-stage companies
	Madison Capital	Q3	Real estate lending
	Thoma Bravo	Q4	Buyouts of software companies
Real Estate	Angelo Gordon	Q2	Distressed properties in western Europe
	Allianz	Q2	Core properties in Asia's gateway cities
	Starlight Investments	Q2	Multifamily real estate in North America
	KKR	Q3	CMBS, real estate in Asia
	Scape Australia	Q3	Student housing in Australia
Infrastructure	Antin Infrastructure  Partners	Q2	Energy, telecommunication facilities in Europe and US
	Keppel Infrastructure	Q2	Energy, waste treatment facilities in Asia
	APG	Q4	Transport and logistics facilities in Asia and Europe
	IFM Investors	Q4	Energy, transport facilities in Europe and US

For private debt investment, the NPS awarded new mandates to Antares Capital Advisers and Madison Capital in the third quarter. Chicago-based Antares Capital provides loans to US middle-market and private equity-backed companies. New York-based Madison Capital is a real estate private equity firm focused on debt and equity investment strategies.

Since stepping into the private debt market in 2019, “NPS is diversifying its private equity portfolio heavy on buyout funds," said an investment banking source.

REAL ESTATE, INFRASTRUCTURE

In the second quarter when the COVID-19 pandemic began to take hold, the NPS ramped up investments in real estate and infrastructure. For real estate, Allianz SE, Angelo Gordon and Starlight Investments were included in the pool of the NPS’ 52 overseas real estate investment firms in the second quarter of 2020. For the infrastructure portfolio, Antin Infrastructure Partners and Keppel Infrastructure Holdings joined the line-up of 36 infrastructure managers in the April-June quarter.

Through a $2.3 billion joint fund established with Germany’s Allianz SE last year, the NPS has invested in core real estate in Asia, including prime office buildings in Singapore, Shanghai and Tokyo.

Last year, the NPS formed a strategic alliance with APG, through which they also invested in Portugal’s largest toll road operator. The South Korean pension fund also made a 50:50 investment in student housing facilities in Australia with APG in August, while reportedly committing $300 million to a fund of Sydney-based Scape Australia Management. Scape Australia Management is Australia’s largest student accommodation provider. 

“While investing in core assets, we also invested in landmark real estate developments in core cities and logistics centers to keep pace with the changing trends,” an NPS official told Market Insight, the capital news arm of The Korea Economic Daily. “We will also continue to explore investment opportunities for distressed assets hit hard by the global pandemic.”

Dutch pension manager APG and Australia-based investment management firm IFM Investors were added to the NPS' pool of 38 global infrastructure managers last year, while US-based private equity firm Thoma Bravo joined the group of 63 private equity investment managers.

To further diversify its portfolio, the NPS disclosed its criteria for the selection of multi-asset management firms last week to venture into multi-asset funds. It followed its maiden investment in timberland, land available for timber or farm production, committing $150 million to London-based Stafford Capital Partners.

Last year, the NPS reported a 9.7% return from investments, driven by a 35% return from domestic equities. Alternatives returned 2.38% on average last year.

Write to Jung-hwan Hwang at jung@hankyung.com
Yeonhee Kim edited this article.