From Seoul with love

Following recent “investigations” by South Korean authorities into several US private equity firms, the country’s $130bn public pension scheme recently announced plans to invest $7bn in buyout funds over the next five years.

Over the past year, South Korean politicians have found a convenient target in the form of US private equity firms, many of whom do not pay taxes in South Korea. In a speech earlier this year, the country’s Financial Supervisory Commission Chairman, Yoon Jeung-hyun, said: “We will not tolerate any speculative capital if it is for short-term investment gains and intervening in management.”

These types of criticisms, from government officials and citizens alike, has led to a number of investigations by tax authorities into firms such as The Carlyle Group and Lone Star, both of whom have recently made profitable exits from investments in South Korean companies.

Politics aside, however, when it comes to generating strong returns, South Korea certainly appears to be warming to the asset class.

Last week, the operator of the country’s public pension plan, the National Pension Corporation, announced that it would invest up to 6.6 trillion won ($6.6 billion; €5.4 billion) in private equity funds by 2010 as part of an effort to diversify its portfolio and increase overall returns. The decision was made by the 21-person committee that oversees the pension plan, headed by the Minister of Health and Welfare, Geun-Tae Kim.

Geun-Tae Kim

The pension scheme, which had approximately $133 billion in assets as of December 31, 2004, has not been an active investor in private equity and venture capital previously – its current commitments total approximately $315 million. Historically, most of the plan’s investments have been concentrated in bonds, although the pension operator is also looking to increase its exposure to foreign and domestic stocks as well as alternative investments.

The National Pension Corporation had previously announced a plan to commit capital to private equity funds, pledging to invest $350 million this year. It will reportedly target a return of 15 percent.

In 2004, the National Pension Fund generated an overall return of 8 percent compared to 7 percent the prior year.