Limited partners (LPs) are becoming worried about the potential impact of the New Deal investment fund operated by Korea Development Bank (KDB) on market liquidity, with nearly one trillion won ($898 billion) scheduled to be invested at the one time.
Industry sources said working groups at LPs are concerned that the value of investment assets could rise if additional liquidity is injected into the private equity (PE) market while it also contains uninvested capital.
General partners (GPs) that have the existing Growth Support fund and the National Pension Service (NPS) as anchor investors are expected to compete for this year’s blind-pool fund mandates with GPs that have New Deal funds as anchor investors.
“If the existing Growth Support fund and the NPS’ allocations for this year are made as scheduled, the demand for matching funds in the market will dramatically increase, which will lead to heated competition,” an official familiar with the matter said, adding, “Eventually, the valuation of investment assets will rise, but LPs, which are public institutions, have no choice but to read the government’s face.”
Managers will have to compete strongly, even if other LPs decide to contribute matching funds. In order to enhance the attractiveness of each newly-created fund, managers are expected to emphasize their expertise in the New Deal investments while carrying out marketing campaigns to promote their existing track records.
Market insiders said anchor investors are worried that their selection of managers may be affected, while small and medium-sized LPs that provided matching funds are worried that the autonomy of the manager selection process will be violated.
LPs are collecting information on the fund because KDB is expected to start awarding a shortlist of mandates soon. Prime Minister Chung Sye-kyun has directly demanded that they refrain from investing in real estate, while emphasizing its importance.
A number of pension funds and mutual aid associations have recently asked whether their current investment assets meet the KDB’s guidelines, industry sources said. Most LPs have reportedly started collecting information on the fund.
“We have been casually asked by some LPs over the phone whether there are possible investments that are eligible for the New Deal investment,” said a PE source. “It seems there are many concerns about the government’s New Deal fund drive.”
A PE official who participated in New Deal fund investments added: “This New Deal fund investment clearly acts as an opportunity for managers seeking to form a blind fund, but they have to overcome a lot of challenges.” (Reporting by Ik-hwan Choi)