Korean LPs sharpen eyes on GPs' post-investment management

After COVID-19, South Korean pension funds and insurance companies put a greater focus on asset managers' capabilities for post-investment management in the process of choosing general partners (GPs), said their senior alternative investment managers.

Investment philosophy, interest alignment and organizational and ownership structure also remain key elements in their due diligence.

"They showed big differences in their capabilities, attitude and communication for post-investment management after COVID-19," said Shin Minsik, chief investment officer at Hanwha Life Insurance Co., during a limited partner (LP) panel discussion at the global alternative investment conference ASK 2024 on Oct. 16.

"We're upgrading our due diligence questionnaire to tighten the process of verifying GPs' capabilities," he said.

Hyundai Marine & Fire Insurance Co. also is scrutinizing GPs' post-investment management after recently booking a loss from a mid-market credit fund, managed by a top-tier investment firm.

"We're closely looking at GPs' workout and restructuring experiences and their team structure," said Park Jun, Hyundai's senior alternatives manager in another LP panel session at ASK 2024.

The Korea Teachers’ Credit Union focuses on the ownership structure and employee turnouts for choosing GPs, said Kim Hyungon, a senior manager overseeing its infrastructure assets.

Aactive communication and regular research updates are another key considerations to re-up, he added.

Cho Yunsam, in charge of Kyobo Life Insurance Co.'s overseas alternative investments, said it will look at GPs' investment philosophy and investment process, saying: "What if a firm, which said focuses on company fundamentals, is tracking markets?"

"We'll also look closely at their ownership and organizational structures, compensation systems and how stable their succession plans are," he noted.

The Military Mutual Aid Association prefers GPs with strategic consistency for same vintage funds because it aims to reduce investment volatility through alternatives rather than seeking higher yields, said Pai Hongkyun, a senior investment manager at the retirement fund.

Lotte Insurance Co. puts communicationt transparency and accurate and regular updates on their investment performance as the key criteria for its GP selection, said Park Jaehyun, managing director of its financial investment division.

COMMITMENT TO BLIND POOL FUNDS

South Korean big asset owners will continue to increase their allocation to external managers amid the lack of in-house portfolio managers.

"We will invest through blind funds managed by specialized GPs, rather than approaching on a project basis," said Hyundai's Park.