South Korean main asset homeowners are searching for to diversify their senior direct lending-focused personal credit score portfolios into subordinated and distressed loans to offset decrease rates of interest.
They’re additionally pivoting towards buyout offers, primarily within the center market, from secondaries on expectations of a valuation pullback in 2026.
Nonetheless, they’re inserting larger emphasis on secure money flows, or distributed to paid-in capital (DPI) ratios, over inside fee of returns (IRRs), their senior portfolio managers stated on Wednesday.
The next are remarks made by 4 institutional buyers throughout a panel session on the international funding convention ASK 2025 hosted by The Korea Financial Day by day:
PRIVATE CREDIT
TEACHERS’ PENSION: “Our fund is at an inflection level, shifting right into a extra mature part. Liquidity administration has emerged as a essential situation,” stated Lee Hyojin, head of the company finance group at Academics’ Pension.
“Common money move has grow to be a precedence. We’re placing extra concentrate on DPI than on IRR. We lately started to think about DPI (for portfolio evaluations).
“Personal fairness portfolios are being reviewed beneath the identical strategic lens. We have to preserve a sure stage of liquidity throughout asset courses.”
MILITARY MUTUAL AID ASSOCIATION: “We are going to take into account investing in subordinated and particular state of affairs methods, in addition to mezzanine and CLOs with a concentrate on Europe,” stated Oh Younger Jun, supervisor of company finance group 1 on the Navy Mutual Help Affiliation.
“Personal debt continues to supply predictable, secure returns. With fee cuts now underway, we see a chance to develop publicity to opportunistic and distressed methods.”
“We are going to make investments primarily by way of flagship funds.”
KYBO LIFE INSURANCE: “We are going to intently monitor DPI efficiency in personal debt methods,” stated Cho Yunsam, normal supervisor of the abroad different funding group at Kyobo Life Insurance coverage Co.
“Whereas rates of interest are falling, we don’t anticipate a fall to zero charges. We consider that is the time to take an excessively conservative stance and this is probably not the proper time to pursue main shifts.”
“Personal debt will doubtless proceed to display sturdy risk-adjusted efficiency going ahead, regardless of expectations of rate of interest cuts in Europe and the US. We are going to take a more in-depth have a look at managers’ loss charges.”
HYUNDAI MARINE & FIRE INSURANCE: “The personal credit score market is predicted to proceed rising,” stated Han Woong, head of personal fairness and personal debt group at Hyundai Marine & Fireplace Insurance coverage Co., including that stability is its precedence.
“Regardless of some information from the US, mid-market personal debt efficiency stays secure. We’ve invested in merchandise backed by collateral structured with tight mortgage covenants.”
He referred to the collapse of US auto components maker First Manufacturers Group and subprime auto lender Tricolor in September, which raised issues over the robustness of underwriting requirements within the personal credit score market.
“Senior secured loans nonetheless account for a excessive portion (of personal credit score property). We are going to keep away from overconcentration in senior direct lending and regularly enhance publicity to opportunistic credit score, distressed property and asset-backed securities.”
PRIVATE EQUITY
MILITARY MUTUAL AID ASSOCIATION: “We consider now’s an opportune time to extend publicity to personal fairness. With rates of interest declining, we count on a pickup in M&A exercise, led by buyout offers.”
“DPI has grow to be a essential benchmark for assessing personal fairness managers. As exit timelines lengthen, we’re placing extra concentrate on companies’ exit observe information and their means to provoke dividend payouts in a well timed method.”
“We are going to proceed growing allocations to fairness methods that ship constant dividend payouts.”
HYUNDAI MARINE & FIRE INSURANCE: “In an setting the place rates of interest are falling, geopolitical dangers are rising alongside expertise innovation, we discover it tough to make sudden shifts in funding technique or asset allocation.”
“After a protracted interval of rising rates of interest from 2022 by way of 2024, M&A exercise slowed on issues over elevated prices and pressured valuations.”
“However these issues look like easing. There are rising expectations that valuations are normalizing. We’re watching intently for indicators of a rebound (within the M&A market), significantly in North America’s center market.”
“We’ve been leaning closely into secondary offers to offset the J-curve impact. However as allocations to secondaries develop, we want to enhance publicity to buyout methods.”
SAMSUNG ASSET MANAGEMENT: “Personal fairness valuations have notably lagged behind public equities. Whereas the present freeze in M&A and IPO markets presents exit challenges, we are going to proceed to put money into buyouts, significantly within the mid-market phase,” stated Choo Sangbum, head of the personal fairness funding group at Samsung Asset Administration.
“In comparison with massive firms, the mid-market incorporates a larger focus of native gamers, lots of whom are much less uncovered to tariff disputes and foreign money volatility.”
“Regardless of energy in public markets, IPO home windows stay tight. On this setting, mid-market firms supply larger agility and extra versatile exit choices than their large-cap counterparts.”
“Excessive-performing mid-market buyout funds have begun selectively opening their doorways to new restricted companions.”
“Underwriting danger is more and more shifting towards buyers. On this setting, we intend to take a position solely in merchandise we will totally perceive.”
PARTNERSHIP WITH GENERAL PARTNERS
TEACHERS’ PENSION: “Past easy merchandise and efficiency metrics like IRR and DPI, normal companions who shared our issues and tried to assist resolve these challenges go away a long-lasting impression.”
MILITARY MUTUAL AID ASSOCIATION: “We might welcome differentiated choices that stand aside from different GPs. As due diligence processes grow to be extra rigorous, well timed and thorough supply of requested supplies might be key to facilitating stronger partnerships.”
HYUNDAI MARINE & FIRE INSURANCE: “Relationships with normal companions are evolving into strategic partnerships. Buyers are inserting larger worth on long-term philosophy and constant communication over short-term efficiency.”
“In gentle of latest regulatory modifications, resembling changes to Ok-ICS and related reserve necessities, GPs who can supply steerage are more and more appreciated. It’s changing into a key differentiator. The capability to help LPs, assist us look by way of (the merchandise), meaningfully issues greater than ever.”
KYOBO LIFE INSURANCE: “We consider the standard of service may very well be additional enhanced if they’ve professionals with deeper insights into the Korean market.”
“To correctly calculate the danger fee of personal debt exposures following the introduction of Ok-ICS in insurance coverage firms, a full look-through of personal debt funds should be a prerequisite.”
“No matter efficiency, we’re unlikely to decide to future investments with out full look-through transparency.”
Ok-ICS refers back to the Korean Insurance coverage Capital Commonplace, a monetary soundness measure launched in 2023 to gauge an insurer’s means to satisfy its obligations to policyholders.
SAMSUNG ASSET MANAGEMENT: “Tailor-made methods that mirror every investor’s particular wants have gotten more and more essential. In that context, understanding our priorities is paramount and efficient communication performs a essential function in constructing alignment and belief.”
By Yeonhee Kim
yhkim@hankyung.com
Jennifer Nicholson-Breen edited this text.
