[Reporter’s Notebook] National Pension Service’s ‘Anger’ May Trigger Collapse of LP-GP Trust

National Pension Service Did Not Replace GP Even During the Homeplus Incident
IGIS Asset Management Faces Unprecedented Replacement Amid Sale Process
"Risk of Setting a Bad Precedent and Restricting Future Flexibility"

The National Pension Service has expressed what is effectively 'anger' toward IGIS Asset Management. It has taken the unprecedented step of announcing its intention to replace the asset management company (GP) entrusted with its investment funds. IGIS Asset Management, founded by a former official from the Ministry of Land, Infrastructure and Transport and having grown using National Pension Service capital as a stepping stone, now finds not only its sale process but the very foundation of the company in jeopardy.

The National Pension Service did not opt to replace the GP even during the Homeplus incident, which involved even greater losses and social controversy in the past. This was due to the implications of replacing a GP in a fund managed by a limited partner (LP), as well as the symbolic status of the National Pension Service as the leading LP in Korea and a major global investor. Typically, an LP may choose to exclude a GP from future fund commitments, request improvements, or apply pressure through the Limited Partner Advisory Committee (LPAC). Effectively excluding a GP from an ongoing fund is considered a 'last resort' in the industry.

There are various interpretations regarding the background of this unprecedentedly strong response. Some analysts believe that dissatisfaction with IGIS Asset Management had been building up and finally erupted. In the process of rescuing Magok One Grove, the asset cited as the first target for a GP replacement, it was the National Pension Service that played the substantive role, while IGIS Asset Management merely collected performance fees-fueling further discontent.

Magok One Grove is one of the largest real estate assets in which the National Pension Service has ever invested. In 2021, it invested 2.3 trillion won, but in December 2023, the construction company Taeyoung Engineering & Construction entered a workout process, putting the project at risk of suspension. The National Pension Service, together with the main creditor group, injected an additional 370 billion won to revive the project. The National Pension Service also made significant direct and indirect efforts to attract tenants to address potential vacancy issues after completion. According to industry observers, the influence of the National Pension Service was significant in attracting major international asset managers such as Greystar and Starwood as tenants. In effect, the LP took on the role of the GP as well.

Nevertheless, many in the industry believe that replacing the GP is excessive. As in the IGIS case, providing information on revenue composition and major cost structures during due diligence for a corporate acquisition is standard practice. Taking measures that undermine the company's core revenue on that basis is seen as going too far. However, given the National Pension Service's status as the largest domestic LP, few are willing to raise public objections.

The real issue is the precedent set by this decision. When the National Pension Service takes action, other pension funds and mutual aid associations tend to follow suit. At the same time, the National Pension Service is a major global investor, with international asset managers lining up for its capital. This move serves as a powerful warning to both domestic and international asset managers, but it also carries the risk of being perceived as an abuse of power.

No matter how much the logic of capital dominates the market, the foundation of any contract is trust. A response driven by emotion may feel satisfying in the short term, but in the long run, it could restrict the National Pension Service's own flexibility. If the market comes to see the National Pension Service as an 'LP risk,' capable asset managers may become reluctant to do business with it.

The National Pension Service manages funds tied to the public's retirement. As such, it is vulnerable to shifts in public opinion. This incident is likely to amplify calls for GP replacements even in the case of minor losses. Once a precedent is set, it becomes difficult to justify resisting further demands. The more frequent GP replacements become, the more hesitant asset managers will be to engage with the National Pension Service, regardless of the size of its capital commitments. Ultimately, if capable GPs distance themselves, the resulting losses will be borne by the public's retirement funds.