GEPS, a $6 billion Korean pension fund, is set to increase its allocation to foreign private equity and other alternative asset classes in 2013.
The fund currently allocates 1.7 percent of its alternatives portfolio to fund managers outside Korea. “In the upcoming year, we have a plan to increase investment outside [Korea] gradually,” said its head of alternative assets, Hyuk-Do Kee. “We expect the ratio of overseas investment to be 6.8 percent next year and 7.8 percent in 2015.
“The economy in Korea is shrinking so we want to increase our [exposure] to these products,” Kee said. “A decrease in interest rates means there will be a decrease on the profits of our investments. The return [prospects] of GPs have come down and even if they show the same level or more on returns, we see an increase of [overall] risk [in Korea].”
[Our] first choice is private equity investment. Among private equity we prefer the secondaries style [of investing]. We are also interested in global [direct] private equity investment vehicles under big names.
He added that a number of Korean LPs are assessing alternative asset opportunities in overseas markets for similar reasons.
Institutional investors in Korea have typically invested in domestic managers, with regulations permitting domestic private equity only coming into effect in 2005.
Kee explained that to date, “[GEPS] focused on the domestic market [because it] offered better opportunities to us. The growth rates of Korea’s economy showed good reason for us to set Korea as our main investment target.”
But the fund will now invest more outside Korea, focusing on direct private equity and secondary funds. “Internally, we are near to a consensus about [the] details of our investment policy. [Our] first choice is private equity investment. Among private equity we prefer the secondaries style [of investing],” he said. “We are also interested in global [direct] private equity investment vehicles under big names.”
The size of each investment from GEPS varies from KRW10 billion (€7.2 million; $9.2 million) to KRW100 billion. Track record is the most important criteria for the LP when assessing fund managers, but it does consider investing in first time funds as well, according to PE Asia’s data division.
GEPS currently has 51 percent of its alternative assets portfolio allocated to private equity. “It is a very high level but we are not concerned about the ratio itself because in couple of years [a lot of it] will mature. If we are offered good opportunities, we will try to invest more in private equity.”
However, the LP approaches the global market with caution. “We have to watch developments of the European fiscal crisis cautiously. [Our investment] timing next year could be adjusted by the market situation,” Kee explained.
GEPS is a $6 billion pension fund in Korea and headquartered in Seoul. The fund first invested in private equity in 2005 and has a total allocation of 14.5 percent to alternative assets and 7.4 percent to private equity. Founded in 1982, the GEPS is one of the four public pension programmes in Korea.
The appetite for global alternatives by Korean LPs is the focus of PEI's upcoming Global Alternative Investment Forum: Korea 2013 in Seoul on June 13. Contact Laura Brody for details at email@example.com