South Korea’s Government Employees Pension Service (GEPS) is in the process of evaluating potential partners for its overseas real estate debt management initiative. The organization has shortlisted four prominent global investment firms, namely Blackstone, KKR & Co., Goldman Sachs, and Starwood Capital Group, as disclosed by banking sources on Friday.
The next step for the Korean pension fund involves reviewing presentations from these candidates and ultimately selecting two firms. The chosen firms will then be entrusted with a combined investment of up to $70 million, with each asset manager receiving approximately $35 million. Notably, around 80% of the allocated funds will be directed towards real estate debt funds based in Europe or North America. However, the investment focus will exclude non-performing loans (NPLs) and distressed assets from consideration.
The envisioned investment vehicles will follow a commingled and closed-end structure, encompassing a maximum term of 15 years. Within this timeframe, an investment period of up to six years will be permitted, with the potential for an extension. The targeted internal rate of returns for these initiatives ranges between 7% and 12%.
Earlier in June, GEPS made its initial foray into overseas buyout and growth equity funds by selecting Apollo Global Management, Warburg Pincus, and EQT Partners as its preferred partners. The trio of investment firms secured a collective commitment of $120 million, with each firm receiving $40 million.
With its establishment dating back to 1982, GEPS’ investment management division currently oversees approximately 6.2 trillion won ($4.7 billion) in assets, as reported at the end of 2022. The pension fund’s asset allocation strategy reveals that alternative investments constitute 35.2% of its portfolio, followed closely by allocations of 35.5% in public bonds and 24.4% in public stocks.
In terms of performance, the government workers’ pension fund encountered a 4.4% investment loss over the past year. Notably, the alternative asset segment managed to deliver a promising return of 10.2%. However, the performance of public bonds and equities experienced setbacks, with losses of 7.7% and 18.9% respectively. These challenges were attributed to factors such as interest rate hikes and escalating geopolitical tensions.