Korean PEFs seek opportunities in corporate lending market with credit funds

2021.05.07 13:32:05 | 2021.05.07 13:32:46

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Private equity firms based in South Korea are joining their global peers in the credit fund market that allows businesses to benefit from wider borrowing options and investors greater opportunities in less-risky securities.

VIG Partners, a Seoul-based private equity firm, recently opened a new unit called VIG Credit that manages private credit funds, which invest in corporate bond and such debt securities.

Private credit funds typically guarantee lower yields than regular private equity funds that invest in companies for shares and management rights. But they are sought after by investors for less risk but stable returns. Generally, private credit funds yield around 10 percent while regular private equity funds seek to make over 20 percent returns.

Private credit funds have grown popular among investors, especially those seeking stability in returns rather than taking high risks, like institutions. According to a survey conducted by capital market data tracker Preqin, 62 percent of institutional investors that have investment made in credit funds in Asia hope to expand investment in the category. Compared to this, infrastructure was picked by 50 percent of respondents as the area to increase investment, private equity 39 percent, and real estate 36 percent.

This underpins the latest investment trend pursuing stable returns with small risk, noted an investment banker.

National Pension Service, Korea’s largest institutional investor, and other Korean pension funds have been very active in investing in private credit funds but they have relied mostly on foreign managers. National Pension Service had invested $2.94 billion in Asia-based private credit funds, ranking top among all institutional investors, according to Preqin’s 2018 report. The Korean pension fund’s investment nearly tripled that of Singapore-based Eastspring Investments, ranked No.2 with $1.05 billion.

There are nine private credit fund firms with over $1 billion under management in Asia, and eight of them are based either in Hong Kong or mainland China.

In Korea, IMM Private Equity with over $5 billion assets under management also runs private credit funds. The company recently acquired a 49 percent stake in SK Lubricants through its credit fund management unit IMM Credit Solution that was set up last year.

Market experts anticipate more Korean asset managers would launch their own private credit funds after October when Korea’s revised capital market law takes effect to allow general private equity firms to offer private credit fund products.

By Kang Doo-soon, Park Chang-young and Cho Jeehyun

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