Korean asset owners prefer smaller-sized buyout opportunities for better value creation and easier exits, delegates heard at AsianInvestor’s 16th Institutional Investment Forum Korea in Seoul recently.
Han Woong,
Hyundai Fire& Marine
“We will focus on mid-cap and mid- to small-cap buyouts especially. Compared to large cap, we believe that mid to small cap buyout have more advantages,” Han Woong, head of the private equity and private debt team at Hyundai Marine and Fire Insurance, told a panel discussion of the forum on June 21.
His views resonated with fellow panellist Huh Yoonhyuck, senior managing director and head of private equity group at Korea Investment Corporation (KIC).
The sovereign wealth fund’s main allocation to private equity is in buyouts, and it is looking for further attractive buyout opportunities.
Huh Yoonhyuck,
KIC
“We prefer GPs (general partners) that are adept in creating value. In that regard, we will focus more on middle-market and even small-market GPs over large-market GPs,” Huh said.
EASIER EXITS
KIC believes that mid- and small-cap private equity companies hold more advantages for value creation. For the sovereign wealth fund, which allocates more than 20% of its portfolio to alternative investments, private equity goes beyond merely investing in asset managers’ commingled fund vehicles.
“We have a preference toward the middle-market buyout also in terms of co-investments and direct investments,” Huh said.
The sovereign wealth fund aims for an internal rate of return (IRR) around or above “mid-teens”, he explained.
KIC invests with a ticket size of $50 to $300 million, depending on whether it is in a fund, co-investments, or direct investments. In the case of co-investment, KIC could go below $50 million to $20-30 million.
“We’re reviewing those options as well,” Huh said.
Chung Mikyung,
Shinhan Life
At Shinhan Life Insurance, buyouts beyond the large-cap market are also preferred, according to Chung Mikyung, general manager and head of investment assessment for the life insurer’s investment management arm.
“For private equity, we focus on middle market buyout strategies because exits are easier,” Chung noted.
Shinhan Life has 15.8% of its W51.6 trillion ($37.14 billion) total asset under management allocated to alternative investments. The combined private equity and private debt allocation makes up 27% of the alternatives portfolio.
GOING NICHE
Although niche strategies within private equity are being marketed to asset owners, Hyundai Fire & Marine’s does not deem it an investment theme to pursue.
“I don’t think insurers are quite fond of it,” Han said.
Han noted that niche strategies have become quite popular recently due to the ever-changing market situation where rising interest rates keep liquidity tight. The situation makes it harder for an exit from some private equity investments, despite fund investors getting trapped are crying out for exits and liquidations.
Various vehicles are being used to seek a way out either in the secondaries markets or in private debt.
“There has been a lot of discontentment, so I think that is why niche strategy has emerged. And from the end of last year, net financing has been popping up a lot,” Han said.
With more and more managers launching and marketing niche products recently, he expects this trend to continue.
“So the years of experience and track record from underlying GPs, the private equity managers, would be a very important factor,” Han said.
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