LP interview: Hyundai Marine & Fire Insurance

In terms of private equity, Hyundai Marine & Fire Insurance is best known for its domestic program, which has been active since the early 2000s. It didn’t start building out internationally until 2014, but the ex-Korea program already accounts for half of total exposure to the asset class.

Of Hyundai Insurance’s USD 35bn in assets under management (AUM), USD 3bn is in private equity and USD 1.5bn of that is in the global strategy. This proportion is not expected to increase dramatically, but internally there is a desire to do more – even though the conservative leanings of the organisation represent a significant obstacle.

“We are an insurance firm, so the majority of our investment is domestic fixed-income assets, but we want to enhance target returns through investing on the equity side,” said Innchul Oh, a senior manager focused on global PE, who would like to see his mandate reach 5% of AUM. “The problem with equity is the high volatility markets. That’s why we want to access the private equity side.”

Oh joined Hyundai Insurance in 2020, having previously worked for the likes of Allianz Life, Prudential Corporation Asia, and Credit Suisse Asset Management. He has personally overseen around USD 1.5bn of investments across more than 50 private equity and debt funds globally.

Hyundai Insurance’s early PE activity outside Korea has attempted to mitigate j-curve effects by focusing on commitments to fund-of-funds and secondaries specialists, which represent about USD 400m of the current allocation. These relationships have proven a valuable source of informal advisory support; no advisory services have been officially contracted to date.

For example, Hyundai Insurance made two commitments - worth a combined USD 100m - to flagship funds launched by a global secondaries manager, citing robust deal flow and differentiated returns in terms of gains, dividends, and interest. Oh said recent distributions have come on an almost monthly basis.

There is significant interest in increasing exposure on a no-fee, no-carry basis through co-investment, but manpower is a limiting factor. There are five professionals in the private equity team, only two of whom work on the global program.

Cheque sizes can exceed USD 50m for fund-of-funds but not for buyout, growth, and venture fund commitments. Plans to build out global exposure to these strategies have, in some ways, been supported by the travel restrictions of the pandemic – but resources remain a challenge.

“I used to go to the US and Europe 5-6 times a year, but I haven’t been there in almost two years,” said Oh. “Now, it’s actually easier for me to access top tier GPs through Zoom or Teams, but maybe not for the junior team because they’re not as familiar with global GPs.”

Valuation concerns

Oh confirmed there have been two fund commitments with global buyout managers so far but declined to offer further detail. According to filings with the UK government’s Companies House, one of these is the 11th flagship fund from BC Partners. The vehicle closed last month at EUR 6.9bn (USD 7.6bn), falling short of a EUR 8.5bn target.

The reduced size of the fund is unlikely to be a major concern for Oh, who flagged oversized corpora as one of his key deterrents in the buyout space. He offhandedly estimates an excess of dry powder in the industry has translated into average acquisition multiples of more than 15x EBITDA. It remains to be seen whether GPs can exit at even higher valuations.

“They are not changing their target returns, but the environment is quite different. Interest rates are getting higher, and their purchase multiples are quite high,” Oh said.

Hyundai Insurance has sought to diversify its global private equity exposure by pushing into middle-market growth and late-stage venture. There have been four VC commitments to date, two with US-focused managers, one global fund-of-funds, and one Asian GP.

The Asian investment is an outlier that was pursued as strategically synergistic with the firm’s core business as one of the largest non-life insurers in Korea. Operational priorities include adopting advanced IT infrastructure, strengthening the brand image, adding socially responsible activities, and expanding insurance coverage overseas.

The preference for targeting developed markets is acknowledged as a hallmark of insurance industry judiciousness but also a sign that many investors in Asia – LPs and GPs alike – are still finding their feet in private equity. North America represents more than 50% of the geographic mix, with Europe on about 30%.

“The global top tier GPs have 30-40 years of investment history, but the [Asian] GPs with the longest track records have, maybe, just over 15 years,” Oh said. “The level of experience, and sometimes the content of their message, is quite different.”

At least two investments have been made in the growth category, both with the same US-based manager. The GP, whose history dates back to the mid-1980s, has a strong focus on healthcare and technology, but sector specialisation was not a drawcard.

“Since last year, we tried to identify more growth equity GPs but failed to find ones that are fit for us,” Oh said. “There are a number of healthcare and technology-focused GPs in the market, and it’s very hard to find a good generalist. Less than a handful [of generalists] have a good track record.”

Playing it safe

Hesitancy around mega-funds, developing markets, and homogeneous deal targeting remits betray an ongoing uncertainty about the macro effects of COVID-19 and a sense that private equity has become a bloated strategy in this context.

The plan, for the time being, is to continue ticking up exposure to the asset class roughly in step with growth in AUM. There will be a focus on vintage diversification, robust track records, low loss ratios, established midcap businesses, and realism about the outcomes that can be expected at today’s valuations.

“Recently the situation has gotten worse, and one of the toughest environments is coming,” Oh said, adding that geopolitical factors such as the Russia-Ukraine conflict represented only short-term risks to long-dated strategies including private equity.

“So many investors are turning to private equity, and I really like it, but we should be more cautious about it. Private equity will deliver us double-digit or high single-digit returns. But I’m not sure the top tier GPs that have shown over 2x multiples and over 20% IRR can still deliver that kind of performance.”

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• Topics
• North Asia
• LPs
• Fundraising
• South Korea
• Hyundai Marine & Fire Insurance