Korean investors mull investing in Ares Management’s $2.5 bn US private debt fund

  • 2017-01-30

South Korean institutional investors, including the Korean Scientists and Engineers Mutual-aid Association, Nonghyup Life Insurance Co. Ltd. and Lotte Non-life Insurance Co. Ltd., are strongly considering investing in a $2.5 billion private debt fund (PDF) which Ares Management, L.P. is raising to make direct lending to mid- to big-size US companies.

The blind-pool fund targets an annual internal rate of return (IRR) of 12 to 14% for an investment period of seven years. It is set for a first close in mid-February, an insurance company source said on Jan. 26.

The fundraising follows Ares Capital Europe III, the third European direct lending fund of the US alternative investment firm closed in June 2016.

“Ares is No.1 and No.2 PDF manager in the US and Europe in terms of asset size, respectively,” said the insurance company source in charge of alternative investment on Jan. 26. “Domestic institutions are understood to be strongly considering investing (in the fund), because the annual IRR (of Ares’ PDFs) is an average 15% since 2004.”

Offshore PDFs have been fueling interest of South Korean institutional investors which are searching for low-risk, fixed-income assets, amid expectations that toughened lending regulations on banks will boost demand for private lending.

In 2016, Korea Post, Teachers’ Pension, the Government Employees Pension Fund and the Police Mutual Aid Association had committed capital to PDFs focused on US and European companies.

Now insurance companies are also raising appetite for PDFs. Risk charges to debt investments could be lowered, depending on underlying assets, to less than half of the 12% requirement applied to their investments in private equity funds and equities, when calculating the risk-based capital ratio.

By Daehun Kim and Chang Jae Yoo

daepun@hankyung.com

<Edited by Yeonhee Kim>