Secondaries in vogue in Korea

"The Korean market is very large in terms of dollars but very small in terms of the number of institutions," an Asia-based gatekeeper tells AVCJ. "When they focus on a particular investment theme they tend to colonize the international market."

This is happening with greater frequency across different sub-sectors of private equity. Korea Investment Corporation (KIC) perhaps represents the extreme in terms of speed of alternatives investment program built-out: it went from virtually zero in 2009 to more than $10 billion in committed capital in the space of three years. Other LPs are unlikely to move at a similar pace, but they are certainly becoming more interested in international exposure.

As one industry participant puts it, "We now see more than just the usualsuspects like KIC and National Pension Service (NPS). There are names like Korea Teachers Pension Fund (KTPF) and Government Employees Pension Service."

For a global GP, Korea is no longer just about the possibility of a $100 million commitment from KIC; other institutions, though they may have the capacity to invest no more than $10-50 million, are increasingly active. This clustering effect means that Korea is now well covered by placement agents and a regular stopping point for international private equity firms, if they don't already have a permanent presence in the country.

As to why secondaries are currently in vogue, one explanation is that these are young alternatives programs that want to ramp up their exposure without stepping too far outside the comfort zone. With secondaries, there is a bit more visibility in terms of what is on the block.

An even safer approach is intermediation, which is what KTPF opted for last week when it agreed to invest $30 million each in comingled funds operated by Hamilton Lane and Paul Capital. The former is in the process of raising its third secondary fund with a target of $650 million; the latter is seeking around $2 billion for what will be its 10th global secondaries vehicle.

There were nearly a dozen applicants for the mandate, including the likes of HarbourVest Partners and Partners Group. As with most Korean tenders, the process was reasonably transparent. Domestic regulations state that applicants must be registered in Korea and use a local securities house to act as a reporting entity to the institution in question. Third-party consultants also play a prominent role.

KTPF reportedly wants to increase its international private equity exposure to 15% of its overall PE portfolio within five years. Commitments to the asset class stood at $600 million at the end of 2012. Other public institutions such as Military Mutual Aid Association and Korea Post are also expected to edge from the fringes nearer to the center over the next few years. Expect more public tenders and more sub-sectors to enjoy their time as flavor of the month.

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• Topics
• Secondaries
• North Asia
• South Korea
• KIC
• Secondaries