South Korean public and wealth funds together with insurance majors will place estimated $1 billion in $12 billion mezzanine fund under design by Goldman Sachs Asset Management amid restricted investment options in tightening environment.

Sovereign wealth fund Korea Investment Corp. (KIC) and Korea Teachers’ Credit Union are joining the West Street Mezzanine Partners VIII, the eighth hybrid investment vehicle managed by the New York-based investment major, with $200 million each. National Pension Service(NPS) is mulling similar sum. Private institutions Hanwha Life Insurance and Kyobo Life Insurance are said to be considering $300 to $400 million.

While NPS and KIC will directly put their money into the fund, other institutions will place theirs through Hanwha Asset Management.

West Street Mezzanine Partners VIII targets return of over 10 percent, investing in mixed securities of solid companies with annual EBITDA (earnings before interest, taxes, depreciation, and amortization) of minimum $100 million.

Predecessors delivered handsome returns, with West Street Mezzanine Partner VI and VII both recording an average net internal rate of return of over 11 percent. Both had no loss rate.

Korean institutional investors are placing bulky assets in the fund as the multinational asset management has a proven reliable track record in managing mezzanine funds.

Big institutions are having trouble meeting their investment return target due to stock market routs around the world and subdued leveraged buyout market amid rising interest rates.

Market experts anticipate fast growth in investors’ demand for mid-return and mid-risk mezzanine funds at home and abroad.

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

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