Korean LPs stick to private debt amid market uncertainties

South Korean limited partners will tap private debt as their most preferred asset class in 2024 to secure stable income amid geopolitical conflicts and market uncertainties, a survey showed. Direct lending, a float rate loan for mid-market companies, has remained their top debt strategy since 2017, the survey found.  

The Korea Economic Daily conducted the survey in December 2023. A total of 15 institutional investors – five pension funds, three mutual aid associations and seven insurers, responded with their asset allocation plans, general partners selection standards and market outlook.

The 15 institutions manage more than 2.12 quadrillion won ($1.59 trillion) in assets as of the end of 2023, with 20.7% for alternative investments. Overseas assets make up about 65% of their alternative investments.


Like last year, private debt, alongside infrastructure, will be Korean LPs’ favorite asset class to expand. More than half of the surveyed institutions will increase their private debts, while 20% will hold the current exposure. Some 26.7% are yet to confirm their plan or didn’t respond. No LPs said they will decrease the current exposure.

Some 26.7% will invest in four or more new private debt vehicles this year. About 20% will bet on two funds and 13.3% plan to invest in three funds.

The main reason for private debt investment is stable cashflow, chosen by 46.7% of the surveyed LPs. Portfolio diversification was picked by 33.3%. The remaining didn’t respond.

On the current valuations, some 66.7% of the polled institutions saw global private debts fairly priced today. Some 13.3% said debts are overvalued and underpriced, respectively. 

Blind pool, which decides on specific target companies after closing of a fund, dominated the list of Korean LPs' preferred vehicle types. Separate account, which provides more transparency and customized strategies to LPs, ranked second.


Direct lending, a float rate loan for mid-market companies, will remain their priority for debt investment. The strategy has rapidly expanded since 2008 based on low rates and has not undergone severe stress yet.

The past surveys show that direct lending was the most sought-after debt strategy by Korean LPs in 2022, 2020 and 2017. 

Senior secured, which is backed by the borrower's assets or collateral, ranked second, followed by infrastructure debt. Special situation, which targets high profitability from distressed companies in the mid-market, was chosen by 20% of the surveyed LPs.

Similar to last year’s survey, North America is the Korean LPs’ most preferred private debt investment destination.

Europe is less popular this year than last year – some 26.7% will increase exposure to Europe, while 46.7% will hold. A year earlier, 45.5% aimed to expand their debt investments in Europe and 40.9% planned to hold.


To view the detailed responses of each institution on their alternative asset allocation and fund manager selection, please see the Asset Owners Report.

The 15 surveyed institutions are as follows:

Public pensions and SWF

National Pension Service
Korea Investment Corporation
Government Employees Pension Service
Teachers' Pension
Korea Post (savings)

Mutual aid associations

Military Mutual Aid Association
Korean Federation of Community Credit Cooperatives
The Korean Teachers' Credit Union

Insurers

Kyobo Life Insurance
Samsung Life Insurance
Samsung Fire & Marine Insurance
Shinhan Life Insurance
Hanwha Life
ABL Life Insurance
KB Insurance

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