Why Korean LPs are seeking SMAs

Korean investors are seeking separately managed accounts for transparency and flexible capital deployment.

Korean institutions are seeking managers with multi-asset strategies to tap into customized vehicles as they look for better terms by committing larger amounts of capital to investment partners, PERE‘s sister publication, Private Debt Investor, reported Tuesday.

Korea Scientists and Engineers Mutual Aid Association (SEMA), with a relatively small $4 billion in assets, plans to allocate $120 million to a separately managed account for its multi-asset strategy by year end, the head of the strategic planning team from SEMA confirmed with PDI last Friday.

SEMA requires managers to deliver net returns of one-year US Libor plus 4.25 percent over a five-year period via this account, according to the fund.

The $9.2 billion Public Official Benefits Association (POBA) is also in the process of selecting two offshore managers to allocate $200 million via separately managed accounts, as previously reported.

“It can be interpreted as if we now start buying tailor-made suits over ready-made suits,” a portfolio manager from POBA said in a separate interview with PDI, noting that its manager selection process will be finalised by year end.

POBA requires managers to deliver net returns of 8 percent per annum or an annual coupon of cost of funding [3.4 percent] plus 3 percent over a seven-year period via these accounts.

Larger institutions are also interested in customising their vehicles to find investment partners which can deliver moderate returns over the medium-term. They are also aware of benefits from single asset-based fees and existing LP-GP relationships.

Hyundai Marine & Fire Insurance, with $27 billion in assets, is keen to expand its private equity and private credit exposures via separately managed accounts from its existing manager roster, an investment manager from the firm confirmed with PDI.

The $44 billion Korea Post Insurance Fund (Korea Post) is finalising negotiations to allocate $100 million apiece to two global multi-strategy fund of funds managers.

Korea Post has looked for multi-asset fund of fund managers to mitigate the concentration risk of having a large amount of capital deployed with a single manager.

“Given our investment decision-making process, separately managed accounts seemed appealing to us as we found it hard to meet the deadlines for co-investment opportunities from existing managers,” an investment officer from Korea Post told PDI.

Asked whether the fund is considering both debt and equity investments, he said: “We have more room to build up the equity portfolio so far and plan to allocate to equity managers via SMAs”.

“Greater transparency and learning opportunities from our [separately managed] accounts are also a merit,” he added.