The Police Mutual Aid Association of Korea (PMAA) is considering investing more money in local private equity funds as Covid-19 has made offshore deal-making tougher.
The organization has recently tapped several private equity firms for capital commitments, industry sources said on September 14. Most of them are said to be among managers selected by the National Pension Service for investment mandates in June.
“A small group of local private equity firms has submitted proposals to PMAA,” an industry insider said. “From what I heard, a final investment decision by PMAA has yet to be made.”
The move is unusual because PMAA has largely been focusing on overseas deal-making in allocating funds to alternative assets for the past few years.
It had approximately 3 trillion won ($2.55 billion) in assets under management at the end of 2019, with 51.1% of the total allocated to alternative assets. But offshore investments accounted for nearly two-thirds of the allocation, especially with a large exposure to real estate. Investment in domestic private equity stood at a mere 5.4%, or 161 billion won, of the total assets.
The last time PMAA issued private equity mandates was in 2016, when it awarded mandates of 20 billion won each to SkyLake Investment and Dominus Investment. It has participated as a limited partner in two or three project funds every year in recent years but most of the capital commitments went to a handful of select managers.
PMAA appears to be turning its investment attention to the domestic market because Covid-19 lockdown and travel restrictions have made overseas deal-making difficult, industry watchers said. The change in the organization’s allocation plan would divert more of its money to new investments in domestic private equity.
“The Covid-19 pandemic has forced many Korean institutional investors to make a change to their original allocation plan set out at the beginning of the year and PMAA is apparently not an exception,” said an official at one mutual aid association in Seoul.
The change may not be temporary depending on who will succeed PMAA chief investment officer Lee Do-youn, whose term will expire in October. The group has been conservative in building its private equity portfolio under Lee, whose investment philosophy – based on more than 15 years of experience in fixed income investing – appears to prioritize stability.
“PMAA is one of the largest asset owners in the country but has been considered less accessible to general partners so far,” an official at one private equity firm said. “We will include it in the list of potential limited partners if it makes capital commitments to private equity funds this year.” (Reporting by Ik-hwan Choi)