Why Korea is fertile ground for those seeking new LPs

Winning trust is not easy, but the country’s investors are being won round to private debt by those GPs willing to do the spadework.

Over recent years we have charted the success of private debt fundraising, culminating in last year’s peak of around $200 billion. As general partners become increasingly efficient at vacuuming up all the available capital, the pool of first-time investors in the asset class gets smaller.

But even for those GPs with relatively “plain vanilla” strategies, there is one destination that may bear fruit when it comes to the hunt for new sources of capital. And that place, as we discovered this week, is Seoul.

A considerable number of LPs at our inaugural PDI Seoul Forum expressed interest in the asset class because it seems tailor-made for their needs: a consistent stream of distributions (not characteristic of buyout funds), allowing investors to meet their obligations.

But patience, and significant resource, may be required. At sister publication PERE’s Seoul conference, LPs explicitly told GPs to establish an outpost in the South Korean capital and hire local investment professionals.

Another word of caution: the learning curve may be steeper for Korean LPs than in other parts of the globe. One of the key things Lotte Non-Life Insurance’s Janghwan Lee, the insurer’s head of alternative investment management, said he looks for in an investor is a training programme and the ability to make connections.

A top-level source at an advisory firm noted that the goal of many Korean investors is to ultimately end up on a fund’s LP advisory committee.

In addition, one senior executive at a large Korean pension plan noted that ownership of a firm by its employees is an important factor, along with willingness to make a substantial GP commitment to funds. Both these things, this source said, evidence alignment of interest between the credit manager and its investors.

The work can bear fruit, though, as multiple Korean LPs said the country’s investors value relationships, and one noted that they look favourably upon recommendations or introductions from people they know. That does not, however, mitigate the need to work with a local placement agent and other advisors.

The Korean pension plan executive, along with Lee, noted that now could be a time for them to start considering special situations or distressed debt strategies, potentially providing further openings for firms with those capabilities.

The advisory executive said Korean LPs often start out with three questions of GPs: what are your assets under management? What is your latest performance? And who else is investing with you?

Certainly, it takes time to build a sizeable AUM base through organic growth, rather than purchasing a credit manager, and establishing a lengthy track record takes several fund vintages, assuming the credit executives’ track record is not portable.

Given the importance of relationships to Korean LPs, landing commitments from one or two respectable pension plans – not just from Korea but from around the world – may effectively provide “references” that will gain you clout with investors more widely.

One thing’s for sure: building an investor base in Korea will take more than lip service. It will require GPs to take concrete action and rack up frequent-flier miles, but the saying that “not all worthwhile endeavours come easy” certainly applies here.

Write to the author at andrew.h@peimedia.com