South Korea’s biggest public pension fund National Pension Service (NPS)’s launch of Corporate Partnership fund (COPA fund) isn’t going as planned.
Last year, some conglomerates showed interests in COPA funds where an institution invests in a partnership with a domestic company with a focus on overseas investments, but little progress has been made.
According to investment banking (IB) industry sources on March 30, South Korea’s Hyundai Department Store Group has reviewed a plan to create a 600 billion won COPA fund, which has fallen through for now. A domestic company and an institution contribute 50 percent of the committed capital for a COPA fund with a focus on overseas M&A deals.
Last year, Hyundai Department Store Group had reviewed creating a COPA fund in partnership with the NPS in a bid to search for overseas investment opportunities that can create synergy with its existing businesses. The NPS hired G&A and SK Securities Private Equity (currently SKS PE) as external managers, but it is said that little progress has been made since the second half of 2019.
What is important in managing COPA funds is whether a company has a particular overseas deal in mind to use its fund immediately. Almost 20 South Korean companies including Lotte Group, KT and Nexen Tire have tried so far, but they haven’t made enough investments. Hyundai Department Store Group has also reportedly had lack of deals in the pipeline to make invest decisions immediately after the launch of the fund.
On the other hand, SK Group, which launched its COPA fund last year, decided in advance where to make its investments. This has led to a discussion with the NPS and Korean Teachers’ Credit Union (KTCU) about the launch of COPA funds.
SK Group formed a $1 billion (1.2 trillion won) COPA fund jointly with the NPS at the end of last year, which invested in Vietnam’s Vin group. Separately, the group created a $1 billion COPA fund together with KTCU, which made its first investment in U.S.-based gathering & processing (G&P) company Brazos Midstream just one month after the inception.
CJ Group also has reviewed a plan to launch a fund focusing on overseas investment worth up to one trillion won. The country’s conglomerate discussed the creation of the fund in a bid to find new revenue sources in the developed countries with KB Financial Group, though progress has been sluggish.
CJ Group set up a COPA fund with the NPS and STIC Investment in 2014 and completed all investments last year. The conglomerate made three major investments including China-based Rokin Logistics, Brazilian soy protein concentrate producer Sementes Selecta and Vietnam’s logistics firm Gemadept Corporation.
For now, CJ Group’s financial status and securing anchor limited partners are seen as major obstacles. While Kookmin Bank plans to take part, institutional investors’ participation is needed, including the NPS, Korean Federation of Community Credit Cooperatives (KFCC), or KTCU. Industry insiders expect that CJ Group’s possible COPA fund is likely to meet with lukewarm response from institutional investors.
In the meanwhile, the NPS said it intends to commit up to one trillion won to COPA funds when it announced plan to select external managers for an alternatives strategy in the domestic market on March 27. A pension fund official said that the launch of COPA funds isn’t going to be easy as firms try to save cash amid heightened uncertainties surrounding the global economy.
(By reporter Kim Hye-ran)