Hamilton Lane: Korean LPs’ appetite growing for overseas alts

Korean investors continue to focus on North America and Western Europe due to greater opportunities in these markets than Asia, says Sungji Steve An of Hamilton Lane.

Global alternatives asset manager Hamilton Lane, which counts National Pension Service of Korea, Korea Teachers Pension Fund and Korea Post among its investors, launched its Seoul office – its 12th globally – in November 2015.

Private Equity International caught up with Sungji Steve An, director of business development and client service at the firm, to talk about where Korean institutional investors are allocating capital, geopolitics on the Korean peninsula and expanding the firm’s Seoul outpost.

Sungji Steve An

How has Hamilton Lane’s business in the country changed since setting up in Seoul in 2015?

Hamilton Lane’s business in Korea has consistently increased across numerous products, strategies and solutions since we opened the office. Today, we have several client relationships across our credit, co-investment and secondaries programmes. We recently expanded the Seoul office, more than doubling the space in response to new client relationships and in anticipation of future growth. We now have a team of four, with complementary backgrounds ranging from investments, advisory, consulting and asset management.

Where are Korean LPs investing?

Generally speaking, assets under management across most types of institutional investors have increased and are expected to increase further. So far, the portfolios have skewed to domestic and traditional asset classes in terms of asset allocation, but nearly all of them plan to boost allocations to the overseas alternative space, including private equity and credit.

Korean LPs have been increasing their overseas alternatives investments; which geographies and asset classes interest them the most?

In terms of geography, LPs in this region have typically been managing their portfolios with a focus on developed markets such as North America and Western Europe. Generally, only a handful of investors with mature programmes tend to diversify into Asia and other emerging markets. But, broadly speaking, as overseas alternatives is a new asset class in this region, many LPs will continue to invest in North America and Western Europe, which has the largest opportunity set. In terms of strategies, investors are active across all segments of the private markets – including venture, credit and real assets – not just large- and mid-cap buyout.

Private credit vs private equity – how would you characterise Korean LPs’ appetite for these two?

Private credit is definitely one of the more interesting areas for Korean LPs because of the opportunity to seek yield in a prolonged period of low interest rates. Investors also like the enhanced J-curve mitigation profile of private credit compared to private equity.

Insurance investors in particular tend to prefer private credit over private equity due to the risk-based capital ratio regulated by the authorities (in which investing in private credit is charged with lower risk ratio than private equity).

Meanwhile, private equity strategies such as corporate buyout and growth equity/venture capital have been favoured by many investors with more mature portfolios. As dispersion of returns by corporate buyout and growth equity/VC strategies is wider than that of private credit, many investors initially hired fund of funds managers or set up a separately managed account programme to help identify and choose quality GPs and build relationships before directly investing.

Where are Korean managers finding opportunities?

Deals tend to be carve-outs of non-core businesses. But, the mid-market buyouts that many GPs participate in are typically with family-owned businesses. Many Korean buyout managers have worked previously at international buyout firms and know the LBO playbook. Leverage is commonly used and some managers have a strong focus on the operational side. In terms of sector focus, consumer, services, industrials and technology are all big themes. But clearly the market is competitive and every GP is focusing more and more on how they can add value post-acquisition, strengthen their operating teams and have more value-based impact in their portfolio companies.

Is geopolitics affecting private equity?

Not really, though it may be too early to tell what impact will come from improved South and North Korea relations after the Moon-Kim Summit, or whether there will be changes in domestic policy and taxes by the new left-centric government.


Sungji Steve An is a Seoul-based principal and director for business development and client service for Hamilton Lane.