Korea’s GEPS names managers for PE portfolio

Korea’s Government Employees Pension Service (GEPS) selected three managers to manage its overseas private equity portfolio , underscoring ongoing interest in private investments by the region’s asset owners.

The three fund managers, Apollo Asset Management, EQT AB and Warburg Pincus, were announced by the pension fund on its website last week. The managers will receive a combined $120 million in commitment, or $40 million each.

Under the mandate, Apollo will chase buyout deals in North America, while Warburg Pincus will target pre-IPO companies with high growth potential in North America. EQT will focus on buyouts in Europe.

It marks the first time that GEPS is deploying capital to global buyout and growth equity funds since its inception in 1982, media reports said.

Its overseas alternative investments have been biased toward infrastructure, private debts and secondary transactions.

The request for private equity managers was placed on May 3. The pension fund is also looking for real estate managers, with a request for proposals issued in June.

Tthe fund is focusing on raising its private market investments, as is the case with several asset owners around the region,

The fund has indicated it wants to raise its alternatives portfolio to $20 billion at the end of 2023, from around $17 billion at the end of 2022.

GEPS' alternatives portfolio was its saving grace in 2022: the fund's alternatives assets posted a 10.2% return for the year, while its bonds and equity portfolios suffered drops.

The pension fund allocated 2.2 trillion won ($17 billion), or about 10.5% of its total assets of about $164 billion, including loans, housing, facilities and other businesses, to alternative investments last year. 

SELECTIVE OPPORTUNTIES IN PE

While many asset owners have been wary of private equity in the past 12 months, there are still some pockets of interest, according to industry experts.

"In Europe, after a quieter few months in dealmaking, we are definitely seeing a sense of renewed optimism coming back into the market," Alistair Watson, head of strategy innovation – private equity, abrdn, told AsianInvestor.

“In the buyout space, we are seeing an increase in complex and value deals such as corporate carve-outs, as well as continued strong pricing for the highest quality, more resilient assets. The mid-market is picking up more quickly than large-cap given the lower reliance on debt capital markets."

He noted that there is an increasingly interesting opportunity set in the growth space, with more attractive pricing and structures even for good quality, high growth companies addressing disruptive themes.

“Software remains underpenetrated in Europe and the higher inflationary and wage environment will encourage its greater use in the coming years,” said Watson.

The slower fundraising environment, combined with lower potential for traditional portfolio company liquidity events, is also opening up opportunities in secondaries.

“The secondary market is warming up with some interesting deal opportunities both in limited partner portfolios and general partner-led secondaries, with most deals trading at discounts to intrinsic value as seller volumes increase and buyers price in the huge ongoing market uncertainty,” he said.

“We are probably seeing a faster pick-up in activity in continental Europe, as investors grapple with the higher inflationary environment and second-order impact in the UK.”

CONTINUING APPEAL

Other asset owners have said that they are also keen on adding to private equity allocations this year.

Indonesia’s social security fund, BPJS Ketenagakerjaan, is keen to add to its direct investments, especially private equity, a senior executive told AsianInvestor.

Hong Kong Monetary Authority’s HK$4 trillion ($509.6 billion) Exchange Fund has also said it will continue to explore private equity investments in healthcare, technology, energy transition and infrastructure, including in emerging markets.

British life insurer Prudential plans to diversify into private markets with a focus on ESG-themed assets like private equity impact funds, among others, as well.