Global PEFs in bidding for GEPS’ $100 million overseas secondary fund investment

  • 2016-05-18

– GEPS to make 2nd commitment to global secondary PEF since 2014; investment size to triple

– To pick 2 GPs by mid-June to commit $50 million, respectively

– Appears to prefer firms capable of quick investment execution and retrieval

 

By Donghun Lee

Leading secondary investment fund houses have participated in the bidding to win the mandate for a combined $100 million commitment from South Korea’s Government Employees Pension Service (GEPS), according to an investment banking source on May 15.

GEPS in South Korea announced the new investment plan late in April and posted the notification for request of proposals on its website. It is set to select two general partners (GPs) for global secondary private equity strategy by mid-June.

Fourteen firms with various strategies have handed in their bids by the May 12 deadline, according to the source. Among the bidders are secondary investment-specialized funds, fund of funds management companies and firms making secondary investment as part of a large-size PEF business.

US-based Pomona Capital to which GEPS made a $30 million commitment in 2014 also participated in the bidding. The other bidders include Lexington Partners, HarbourVest, Hamilton Lane, AlpInvest Partners, Neuberger Berman, Goldman Sachs Asset Management, JPMorgan Asset Management and Morgan Stanley Investment Management.

Buoyed by the impressive return from its first global secondary investment made in 2014, GEPS will triple its commitment to overseas secondary investment funds this year: each of the two designated firms will receive $50 million.

“Secondary investment-specialized firms make traditional secondary investments such as LP interest transaction,” said the investment banking source. “In comparison, fund of funds management companies carry out secondary investments through structured transactions. It may be possible that (GEPS) picks GPs by management strategy.”

The source added that a number of firms among the bidders have already announced the completion of fund-raisings. “It looks very competitive to win the mandate.”

The pension fund for South Korean civil servants appears to prefer asset managers capable of swift investment execution and retrieval over the size or name value of the management house. It is seen as part of a strategy aimed at minimizing the J-curve effect.

Back in 2014, GEPS picked Pomona Capital over Lexington Partners to commit $30 million for the reason that Pomosa was in the final stage of forming a $1.5 billion fund, whereas Lexington Partners had just started raising a fund worth over $10 billion at the time. Pomosa Capital had completed investment execution within two years after receiving the commitment from GEPS and reportedly delivered an annual return of over 40% on average.

After the results of first-stage screening are released next week, the shortlisted bidders will be required to make a second presentation at the end of May.

As of end-2015, GEPS had invested in bonds for 49.2% (2.2 trillion won) of its assets, stocks with 35.1% (1.6 trillion won) and alternative assets with 15.7% (721.9 billion won). The pension fund plans to continue the portion of alternative investment assets this year.

leedh@hankyung.com