Political and Market Risks Lead to Cautious Approach to PEF Investments in Second Half of Year

Commitments Slow Amid CIO Appointments
US Tariff Talks Delayed... "Everything Postponed to the Second Half"

As both domestic and international political risks and market uncertainties intensify due to President Donald Trump's tariff policies and the impeachment of former President Yoon Suk-yeol, major pension funds and mutual aid associations are taking a cautious approach to private equity fund (PEF) alternative investments. Some institutions are also in the process of appointing a new Chief Investment Officer (CIO), leading to expectations that they will maintain a wait-and-see stance and move cautiously starting in the second half of the year.

According to the investment banking (IB) industry on May 22, the Local Government Officials' Mutual Aid Association recently confirmed the reappointment of Hur Jang as CIO at the end of last month and is now refining its investment plans for the second half of the year. With assets of approximately 30 trillion won, it is the second largest mutual aid association after the Korea Teachers' Credit Union. However, since raising a venture capital (VC) blind fund in the second half of last year, it has not made any significant new commitments. This was due to both the uncertainty over the CIO's reappointment in the first half of this year and heightened market uncertainty. While internal discussions on investments are ongoing, the association has indicated that it will act cautiously, at least until after the presidential election.

In the case of the Police Mutual Aid Association, which manages assets of about 7 trillion won, the CIO appointment process is still incomplete. Since Lee Youngsang took office as chairman in early April, the organization has been busy with executive appointments, including an auditor and a business director, as well as organizational restructuring. The CIO position has remained vacant for five consecutive years since 2020. The process requires forming a personnel committee and obtaining approval from more than two-thirds of the delegates, making it difficult to proceed quickly. As a result, the association is expected to begin full-scale investments only after the organization is reorganized in the second half of the year.

The National Pension Service, which is most sensitive to public opinion, is expected to forgo competitive bidding for domestic PE this year. Since overseas PE funds have outperformed their domestic counterparts, the share of domestic PE in the portfolio is naturally expected to decrease. In addition, the public criticism that arose following the investment in Homeplus by MBK Partners has become a burden. The possibility of large-scale personnel changes, including the chairman, after the presidential election is also a factor that limits the organization's flexibility.

The Korea Teachers' Credit Union, on the other hand, is moving ahead with investments at a relatively fast pace. On May 13, it selected ten managers for a 700 billion won blind PEF mandate, and is currently recruiting managers for a VC blind fund until May 26. This was possible because the CIO appointment was completed at the end of last year and investment plans were set in advance.

Each pension fund and mutual aid association is closely monitoring the situation after the presidential election. While regulations on private equity funds are expected to be tightened in the wake of the Homeplus incident, there is a growing possibility that support for VC investment, which had been somewhat subdued, will increase. In addition, as the possibility of concluding tariff negotiations with the United States before the presidential election has disappeared, corporate performance and growth prospects remain uncertain.

A representative of a PEF management company explained, "Due to concerns over stricter private equity regulations and the uncertainty surrounding tariff negotiations with the United States, whether it is for private debt or buyout blind funds, we are preparing but taking a cautious wait-and-see approach."