The funds managed by private equity firms (PEFs) that have received mandates from pension funds have been highlighted as a “safe haven” for Korean investors amid a series of scandals involving PEF mismanagement, Maeil Ilbo reported on July 13.
As pension funds, including the National Pension Service (NPS), pick PEFs to award mandates based on a strict evaluation focusing on their risk management abilities, the funds that the selected PEFs manage are likely to be regarded as safer investments, the report said.
“For pension funds, risk management is as much important as high return on investment,” an industry source said. “That’s why they do not award mandates to managers that do not have proper internal risk management systems.”
Concerns about safe investments have been growing rapidly among investors amid a series of fraud cases involving privately placed funds. As of the end of June, 22 PEFs have suspended redemption totaling 5.6 trillion won ($4.64 billion) due to mis-selling and other irregularities.
The biggest case has been Lime Asset Management which halted withdrawals amounting to 1.66 trillion won following hefty losses in derivatives last October. Most recently, Optimus Asset Management suspended redemption of funds worth 38 billion won after making what was found to be questionable investments.
Besides these two, AlpenRoute Asset Management has reportedly suspended withdrawals worth 229.6 billion won since January. German Heritage DLS (derivative-linked securities) has 427.6 billion won in locked-up assets and Italian Health Insurance fund 152.8 billion won.
To avoid further PEF scandals, South Korea’s financial authorities, which have been criticized for not having prepared at least minimum safeguards while it is focusing only on fostering the PEF market, announced last month they will inspect all domestic PEFs.
Pension funds have not suffered any damage due to the controversial PEF scandals, showing their high level of risk management abilities, the report said. It added that through due diligence, they are able to check risks that ordinary investors cannot discover. (Reporting by Kyoungho Lee)