In focus: Korean asset owners step up local alternatives mandates

Institutional investors are making new allocations despite the limited scope of local private markets. A weak won is a major factor for the home bias.
In focus: Korean asset owners step up local alternatives mandates

Korean asset owners are putting their faith in domestic private markets, according to recent requests for proposals (RFPs).

Yellow Umbrella Mutual Aid Fund, the public pension fund operated by the Korea Federation of Small and Medium Business, announced on July 27 a RFP for domestic private equity fund managers for mandates of a total size of up to W260 billion.

The pension fund aims to commit funds to up to six asset managers.

Teachers’ Pension Korea on July 24 also shared an RFP seeking domestic private equity fund managers. The pension fund is looking to allocate up to W400 billion in four separate mandates of up to W100 billion each.

Lee Kyu-hong
Teachers' Pension

In terms of alternative investments, Teachers’ Pension had prioritised private debt — specifically, distressed situations and direct lending strategies – earlier in 2023, Lee Kyu-hong, chief investment officer at Teachers’ Pension, said in June.

“When we select alternative investment blind funds, we focus on the funds that use relatively less leverage and have a covenant that could reduce downside risk, especially with private debt blind funds,” Lee said. 

Also read: Korean Teachers’ Pension finds tactical investments amid 2023 turmoil

The overall framework for the rest of the year will be similar to the fund’s mid- to long-term plan of increasing the alternatives share in total assets under management, supplementing allocations in the first half of the year.

“In terms of alternative investments especially, we will focus more on equity rather than loan or debt,” Lee said. 


Outside the private equity space, Korea Post is also looking to hire an asset manager for a W500 billion ($373 million) domestic real estate debt fund investment mandate.

The fund will primarily focus on senior collateral loans and mortgage loans in property projects, including logistics facilities and offices. The investment period of the fund is three years and the maturity period is seven years.

Korea Post also launched an RFP for two mandates for domestic private debt in the mezzanine space. Both the real estate debt and private debt mandates are on behalf its insurance arm.

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These domestic private market allocations come after the turmoil of 2022, when Korean institutions experienced pressure to meet capital calls from commitments to overseas alternatives fund vehicles made earlier, sources familiar with the Korean asset owner scene told AsianInvestor.

The sharp appreciation of the US dollar against the Korean won exchange rate in 2022 made US dollar-denominated capital calls and hedging costs more expensive.

The Korean won depreciated against the dollar by more than 17% from February to October 2022.

Although allocation to overseas private markets are continuing, and the won has regained some of its value against the US dollar this year, the relatively lower value of the Korean won and hedging costs remain major factorss for asset owners to look favourable at the domestic market, sources said.


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