NPS yet to schedule external manager selection; PE firms’ fundraising woes deepen

South Korea’s National Pension Service (NPS), the world’s third-largest pension fund, has yet to decide on a plan to select local external managers, adding to private equity firms’ fundraising woes.

The NPS, South Korea’s top institutional investor, has not finalized a schedule for selecting external managers, which is unusual, investment banking industry sources said on Wednesday.

“We have yet to make any decision,” NPS officials were quoted by asset managers as saying.

The NPS usually embarks on a process to pick external managers from the country’s private equity firms in April. The fund with 1,227 trillion won ($864.8 billion) in assets under management (AUM) as of February 2025 completes the selection in June and July after reviewing proposals, due diligence and other processes.

The delay came as the country decided to reform the pension system and the fund was set to introduce a new simplified asset allocation guideline to invest more in risky assets.

The NPS is also reportedly reluctant to make a decision, given protracted political uncertainties and the controversial corporate rehabilitation of hypermarket operator Homeplus Co. owned by MBK Partners Ltd.

TROUBLES IN FUNDRAISING

The pension fund appoints three to four external fund operators and commits up to 350 billion won to each manager.

Once a private equity firm is selected by the NPS, it is easier for them to raise money from other major investors.

The private equity industry is concerned that the pension fund has yet to schedule the selection process.

The NPS may cut its commitment to buyout funds but raise the allocation for credit funds, industry sources said. Some speculated that the pension fund may not appoint external managers this year.

The NPS plans to select external managers this year as usual, although it has yet to decide how many private equity firms it will choose and how much it will allocate, according to officials of the pension fund.

REFORMS, MBK, POLITICS

That came as lawmakers last month agreed to seek parametric reform of the NPS. The pension fund decided to introduce an asset allocation standard portfolio, which allows it to raise the proportion of risky assets to 65% of its entire fund.

The pension fund is also reluctant to commit billions of dollars to private equity firms, given increasing public criticism of MBK, industry sources said.

It is also difficult for the NPS to make a decision ahead of the presidential election on June 3 after the country’s Constitutional Court permanently removed President Yoon Suk Yeol from office on his declaration of martial law in December, those sources said.

The NPS may reduce its allocation to buyout funds as there are not many major private equity firms that can operate money of the pension fund, according to the sources.

Last year, it hired four investment firms – MBK Partners LLC, JKL Partners Inc., Praxis Capital Partners Co. and Premier Partners LLC – for domestic private equity management.

“It is tough for the NPS to commit 200 billion won to 300 billion won to smaller firms, which cannot raise funds of more than 1 trillion won,” said an investment banking industry source.

“It is understood that the NPS has been considering the total allocation size since late last year, checking major asset managers to see whether they would participate in the selection process.”

Write to Jong-Kwan Park and Gyeong-Jin Min at pjk@hankyung.com
 
Jongwoo Cheon edited his article.