S.Korea’s GEPS to commit $143 million to foreign mid-cap buyout funds

The Government Employees Pension Service (GEPS), one of South Korea’s top three public pension programs, will commit up to 200 billion won ($143 million) in total to offshore middle-market buyout funds, marking a continued global push to diversify its portfolio through alternative investments.  

According to sources in the investment banking industry on Thursday, GEPS is expected to kick off an official process to recruit two to three overseas private equity firms specializing in middle-market buyouts in North America and Europe as early as this month.

Each fund selected is expected to receive between 50 billion won and 70 billion won in commitments.

The selection process will follow GEPS’ standard procedures, including evaluation of quantitative metrics and qualitative due diligence.  

The Korean public pension service has already secured internal approval for its middle-market investment plan, sources said.

GEPS, with 12.31 trillion won in assets under management (AUM) as of end-April, made its first commitment to foreign buyout managers in 2023 as part of efforts to diversify its portfolio with the addition of overseas alternative assets.

After tapping large-cap buyout specialists two years ago, the upcoming mandate will mark its foray into the overseas mid-cap buyout market.   

As GEPS is expected to continue expanding its offshore investment and diversifying assets, competition among overseas middle-market buyout firms to win the hearts of local limited partners (LPs) is expected to heat up.  

ASSET DIVERSIFICATION CONTINUES

GEPS started seeking to expand its investment in foreign assets and diversify its portfolio since the inauguration of Chief Investment Officer (CIO) Baek Joo-hyun, former alternative investment head at Samsung Life Insurance Co., in 2022.

Mid-cap buyout funds typically target businesses with enterprise values between large-cap and small-cap companies.

Their smaller fund often makes them more sector-specific and less visible than large-cap buyout funds, requiring more careful evaluation during the selection process.  

However, they can offer more diverse and flexible exit plans beyond buyouts, including initial public offerings and capital injection by financial investors.

GEPS is reportedly in final talks to determine its commitment details and is conducting reference checks with both LPs and general partners (GPs) of prospective middle-market buyout fund managers.  

Its current CIO Baek is set to leave his post in July after completing his second term, and the pension program is currently searching for a successor.  

As one of Korea’s top three public pension services – alongside the National Pension Service and Teachers’ Pension – GEPS was founded in 1982 to provide benefits to government employees, pensioners and their families.

Write to Gyeong-Jin Min at min@hankyung.com

Sookyung Seo edited this article.