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How this $35bn South Korean insurer approaches new GP relationships

Hyundai Marine & Fire Insurance has a 25% allocation to alternatives, of which about one-quarter is held in private equity and private debt, senior manager Innchul Oh tells PEI.

Innchul Oh Hyundai Marine Fire Insurance
Innchul Oh: considering re-ups and new relationships

During a period when many investors are inundated with re-up opportunities, finding the time and financial capacity to build new GP relationships can prove challenging. Innchul Oh, a senior manager for private equity at Hyundai Marine & Fire Insurance (HDMF), is among those attempting to strike a careful balance.

The 43.3 trillion won ($34.7 billion; €31.6 billion) insurer has a 25 percent allocation to alternatives, half of which is in real estate and the other split between private equity and infrastructure, Oh told Private Equity International. Oh joined HDMF in 2020 from National Agricultural Cooperative Federation and has committed $1.5 billion across 50 funds during his career.

HDMF’s private equity bucket contains an even mix of debt and equity that is both global and domestic. The lion’s share of equity is held in secondaries funds, with about one-quarter in buyouts, growth and venture capital.

Like many of its peers, the insurer is mostly occupied with re-up opportunities driven by a wave of managers returning to market more quickly and with larger funds.

“It is very hard to invest with new GPs because we already have a huge portfolio, so we should consider our existing GP relationships,” Oh said, noting that on rare occasions, the institution will decline to participate in a re-up. “I do not want to invest more if GPs do not make their target returns or if there was a huge turnover in their investment professionals or huge changes in their ownership structure.”

HDMF will only consider building new relationships in strategies that are less well represented in its portfolio. “[For] new strategies such as growth and venture capital we just have less than a handful of investments, so in that area we can try to get access to new GPs,” Oh added. “The total amount of buyouts is also not that high, so we should expand the number of buyout GPs. But on the other hand, for the secondaries managers, I think it’s enough.”

HDMF’s re-up headache is not an isolated incident. Some 23 percent of respondents to PEI’s LP Perspectives 2022 Study said they are over-allocated for this year, up from 13 percent in 2021, the highest percentage since the first survey in 2018. For some, this means a more circumspect approach to deploying capital, which is likely to benefit the best-performing existing relationships, as PEI explored in its March deep dive.

Private equity funds raised $733 billion in full-year 2021, edging out the previous record year, 2019, by about 2 percent, according to PEI data. For the first time since 2018, the number of funds to close also rose, from 1,313 last year to 1,384 this time around. The average fund size was $530 million, the highest level yet recorded and almost a full 50 percent up on 2017.

“I also worry about the huge dry powder in the market; each private equity [fund] size is getting bigger,” Oh said. “I still worry about how they can make their targets, such as their previous years’ over 2x TVPI and 20 percent IRR. I cannot imagine they are still well placed like previous days, but I still do believe the private equities return is much higher than the public equity side.”

Second chances

HDMF’s predilection for secondaries is in part a quirk of South Korea’s investment landscape, which is more conservative than its peers. This dynamic is also why its private equity portfolio contains a significant chunk of direct lending funds.

“In the Korean market and Korean situation… they do not lose their money and they always want to only [receive their] cash back,” Oh noted. “We do not have much exposure in special situations, mezzanine and distressed investments because we’re just mitigating the J-curve through the direct lending side, and we cannot hide the capital gains from the private equity side.”

Despite Korea’s historic aversion to risk, the country is home to some of the world’s largest private equity investors. Three Korean institutions – National Pension Service of Korea, Korea Investment Corporation and Korean Teachers’ Credit Union – made it into PEI’s Global Investor 100 ranking last year, representing about $48.7 billion of private equity assets between them.

Unlike some of these giants, HDMF is still some way off participating in the co-investments or directs much beloved of large institutions seeking to increase their cost efficiency.

“I really want to try those kinds of transactions,” Oh said. “Realistically, the number of employees in our department is not [big enough to] cover actively direct and co-investment, so we need more time to expand.”

ESG matters

ESG is another area in which Asia-Pacific institutions more broadly are comparatively nascent. For example, according to Dechert and Mergermarket’s 2022 Global Private Equity Outlook, some 60 percent of North American respondents and 49 percent of EMEA respondents expect a significant increase in LP scrutiny of ESG issues and reporting in deals over the next three years, versus just 20 percent of APAC respondents.

“In our Korean investor circumstances, almost every institution does not have any items about evaluating ESG, so we do not consider much about the ESG issues,” Oh noted. “But for example, some deals related to war or gambling… we do not want to invest in.”

Like many investors globally, however, HDMF is toying with the idea of participating via a dedicated ESG or impact fund strategy.

“In my case, I forecast to focus more about topics such as impact or the venture or ESG themes,” Oh said. “I’m really interested in the impact side. Frankly speaking, we don’t have any exposure… but I think I want to invest.”

Innchul Oh will be speaking at affiliate title Private Debt Investor’s APAC Forum 2022 in Singapore on 13 April