More Korean LPs look to buyouts, special situations for private equity

Healthcare continued to be the preferred sector for South Korean institutional investors this year as it was last year, a survey found. Meanwhile, their appetite for global tech stocks has waned as the sector's bubble is speculated to burst. Amid growing concerns about a looming recession, more institutional investors are eyeing buyouts and special situation strategies for undervalued private equity, the survey showed.  

The Korea Economic Daily conducted the survey of Korea's 22 major institutional investors, including pension funds, mutual aid associations and insurers, early this year. Together they manage 2.11 quadrillion won ($1.59 trillion) in assets. Of the 22 investors, 20 manage 411.4 trillion won ($308.9 billion) in alternative assets.

Fewer investors will increase exposure to global private equity this year compared to last year. About 45% said they will raise the proportion of private equity in their portfolios in 2023, while some 62% answered they would last year.

Instead, more of them will hold their current exposure to the asset class – about 36% said they will maintain the proportion, compared with 23% last year.

Such responses are reflected in LPs' overall alternative investment strategies. Private equity is the asset class that institutional investors perceive as the most overpriced among alternative investments. More than 77% said global private equity is highly or moderately overvalued; 13.6% thought the asset class is fairly valued, and only 4.5% said it is undervalued.

Healthcare remained the top sector that Korean limited partners (LPs) opted to increase. More than 45% will raise their exposure to healthcare this year, similar to last year’s 42.3%.

Participants' preference for tech plunged to 18.2% this year from 46.2% last year due to concerns about the sector's bubble having burst; about 59% said they will hold the proportion of tech equity. Consumer & retail was least preferred. Only 4.5% will increase their private equity in the sector, down from 15.4% last year; 45.5% will hold the current proportion, while 27.3% will reduce the assets.

More Korean institutional investors are poised to employ buyouts, or taking a controlling stake, and special situation strategies for undervalued equity in the bear private market.  Some 59% will increase buyouts this year, compared with 38.5% last year. Also, half of the surveyees voted to raise special situation investments this year, up from 30.8% last year.

By geography, North America continued to be the favorite region for Korean institutional investors. Half of them will increase exposure to private equity in North America this year, similar to 53.8% last year. Some 36% will hold the current proportion, and none of the investors said they will decrease exposure. The remaining didn’t answer.

In addition, some 32% of them voted to increase European private equity this year, down from 42.3%. Half of them will maintain the current exposure, and 4.5% will reduce it.

The investors’ choices for Asian private equity further reduced to 9.1% this year, from 15.4% in 2022 and 23.5% in 2021. Some 59% will keep the current exposure, while 9.1% will decrease it; 22.7% didn’t answer whether or not to change the exposure.

Blind pool funds remained the most popular vehicle for Korean LPs. In the multiple choice questions offering up to two choices, all the 22 surveyees, excluding the four who didn’t answer, said they prefer blind pools. Half of the surveyees picked co-investments, and 13.6% opted for separately managed accounts.

To view responses of individual institutions on their alternative asset allocation and fund manager selection, please visit Asset Owners Report.

Participants in this survey are as follows:

Public pensions and SWF

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

Mutual aids & associations 

Yellow Umbrella Mutual Aid Fund
Military Mutual Aid Association
Public Officials Benefit Association
Korean Federation of Community Credit Cooperatives
The Korean Teachers' Credit Union

Insurers

Kyobo Life Insurance
Samsung Life Insurance
NongHyup Life Insurance
NongHyup Property and Casualty Insurance
Meritz Fire & Marine Insurance
Samsung Fire & Marine Insurance
Shinhan Life Insurance
Hanwha Life Insurance
Hyundai Marine and Fire Insurance
ABL Life Insurance
KB Insurance
KB Life Insurance

Write to Jihyun Kim at snowy@hankyung.com

Jennifer Nicholson-Breen edited this article.