Considering Enhancement of Investee Company Value
Delayed Selection Process Expected to Resume
The National Pension Service (NPS) has strengthened its selection criteria for domestic private equity fund (PEF) managers in light of the Homeplus incident. Going forward, the NPS will strictly review factors such as the enhancement of corporate value and the soundness of capital structure when evaluating asset managers.
According to the investment banking (IB) industry on July 25, the Private Venture Investment Division of the NPS Fund Management Headquarters recently disclosed these updated criteria. Currently, the NPS selects asset managers by giving equal weight (50:50) to the results of proposal reviews and oral evaluations.
Under the revised criteria, the score allocated to operational performance in the oral evaluation has been doubled from 15 points to 30 points. In particular, in addition to the previously assessed excellence and appropriateness of operational performance, a new category called "quality of investment returns" has been introduced with a score of 10 points. The quality of investment returns will be evaluated based on the qualitative and quantitative enhancement of the investee company's value, sustainable growth strategies, sound capital structure, and reliable corporate governance.
This change comes as a result of the social controversy sparked earlier this year when MBK Partners, the private equity firm that is the majority shareholder of Homeplus, filed for corporate rehabilitation proceedings without any self-rescue efforts for normalizing Homeplus's management. This has exposed the NPS to significant investment loss risks. In 2015, the NPS invested KRW 582.6 billion in redeemable convertible preferred shares (RCPS) through a project fund, and KRW 29.5 billion in common shares through a blind fund, as part of MBK Partners' acquisition of Homeplus. The market widely expects that the NPS is unlikely to recover the KRW 29.5 billion investment.
Additionally, the NPS has increased the score for operational performance in the qualitative evaluation of proposals from 30 points to 35 points. Previously, there were only two evaluation items: "operational track record" and "asset size." These have now been specified into four categories: "exit track record," "investment size," "exit size," and "exit ratio," allowing for a more comprehensive assessment of operational performance. The score for risk management systems has also been raised from 10 points to 15 points, emphasizing the importance of asset managers' risk management capabilities.
With the NPS revising its asset manager selection criteria, the previously delayed selection process is expected to commence. Typically, the NPS announces its selection schedule for delegated asset managers in April each year and completes the selection by July. However, this year, the selection process has not yet begun.
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