Private debt and infrastructure are set to remain the preferred alternative asset classes among South Korean institutional investors for the second year running in 2024, according to a survey by The Korea Economic Daily.
KED’s survey, which was carried out with 15 institutional investors last December, also revealed that real estate was the least favoured, although global property stood out as undervalued.
The 15 institutional investors, collectively managing more than KRW2.12qn ($1.59tn) in assets, with 20.7% of that total in alternative investments, comprised five pension funds (National Pension Service, Korea Investment Corporation, Government Employees Pension Service, Teachers’ Pension, Korea Post Savings), three mutual aid associations (Military Mutual Aid Association, Korean Federation of Community Credit Cooperatives, The Korean Teachers’ Credit Union) and seven insurers (Kyobo Life Insurance, Samsung Life Insurance, Samsung Fire & Marine Insurance, Shinhan Life Insurance, Hanwha Life, ABL Life Insurance, KB Insurance). They were surveyed about their asset allocation plans, GP selection standards and market outlook.
Some 47% of the surveyed LPs plan to increase exposure to alternative investments, while 13% intend to hold and cut exposure.
The report quotes Shin Min-sik, Life Executive Director and CIO at Hanwha, one of South Korea’s biggest conglomerates, as saying that institutional investors prefer to increase exposure to private debt due to high interest rates and less strict rules for mark-to-market compared with other asset classes.
Shin said: “Investors should be careful that private debt has rapidly expanded at low rates since 2008 and has not experienced severe stress yet. Also, private debt investors’ positions have weakened as covenant-lite has been more common amid fierce competition for deals. Higher-for-longer rates could worsen the credit risks of speculative-grade companies. So, it would be difficult for investors to continue to increase exposure to private debt at the speed at which they have done so far.
Investors have been eyeing overseas infrastructure as there are not many domestic assets, and this trend will continue. It is difficult for Korean investors to bet on senior loans in overseas infrastructure due to low yields; rather, they will keep an eye on equity in qualifying infrastructure, which provides high capital efficiency.”
On global private debt, 67% of those surveyed described the asset class as fairly valued, while 13.3% thought that it was overvalued. On global infrastructure, 40% described it as fairly valued, while 33.3% thought that it was overpriced.
On global private equity, 40% of LPs said global private equity is fairly priced, while 33.3% saw the asset class as overpriced. Real estate ranked last overall, although 40% and 33.3% described it as fairly valued and undervalued respectively.
