Korean LPs prepare for a downturn - AVCJ Forum

"What if something happens like 2008? We always go over this question and we have to be ready to respond," Dong Hun Jang, CIO of the Public Officials Benefit Association (POBA), told the AVCJ Korea Forum. "Pursuing an absolute returns strategy, we cannot afford not to do alternative investments. But we want to focus more on liquidity."

POBA has KRW11.7 trillion ($10.3 billion) in assets and a 12% allocation to private equity. Real estate and infrastructure account for 20-25% and 7%, respectively, of the portfolio. While the group has been increasing its investments in debt, real estate investment trusts (REITs) in the US, fund-of-hedge-funds, and regulated infrastructure are also under consideration.

Jang captured the sense of uncertainty overshadowing the LP community – "As of now, it's hard to say who is right and who is wrong. Everything has changed totally over the last year" – and these sentiments were echoed by other investors.

"It is difficult to predict what the future will look like, so we are diversifying our investments," said Seung-Ho Kim, a managing director at Hyundai Marine & Fire Insurance. With KRW35 trillion in assets, of which 21% is in alternatives, Hyundai Marine is focusing on debt funds for private equity and real estate. Kim added that there is no allocation to emerging markets in the group's international program, something that gives him comfort in times of uncertainty due to the "contagion factor."

Korean Teachers' Credit Union (KTCU) is also staying clear of emerging markets – on the basis that KRW24 trillion of its KRW35 trillion in assets are invested in Korea, which the group classifies as an emerging market. As with other investors, the priority is ensuring that a relatively young overseas alternatives program has sufficient diversity in its exposure.

Korea Investment Corporation (KIC) only invests internationally but it has been doing so for 10 years, building up a $130 billion portfolio, of which 20% is in alternatives and 7% in private equity. In its early years, immediately after the global financial crisis, the sovereign wealth fund made opportunistic investments in credit and from there proceeded into private equity, starting with buyouts and then including growth strategies. Now it is concentrating on distress and special situations.

"We don't know when the correction will come but we want our portfolio to be solid," said Jay Huh, head of global private equity at KIC. This caution extends into co-investment, with much more time devoted to understanding the sector and the prospective partner GP. The fund is also becoming increasingly conservative on valuations.

"The most important consideration is where does a deal come from. Is it from a GP we know and have performed due diligence on?" Huh added. "When new GPs propose co-investment, in most cases we don't know them, so it takes us more time to evaluate them. And we will apply more haircuts [to valuations]."

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• Topics
• North Asia
• LPs
• Fundraising
• South Korea
• AVCJ Events
• Public Officials Benefit Association (POBA)
• KIC
• Korean Teachers' Credit Union (KTCU)
• Hyundai Marine & Fire Insurance