South Korean major asset owners are seeking to diversify direct lending-focused private credit portfolios into subordinated and distressed loans into offset lower interest rates. They are also shifting toward buyout deals from secondaries on expectations of a valuation pullback in 2026.
However, they are placing greater emphasis on stable cash flows, or distributed to paid-in capital (DPI) ratios, over internal rate of returns (IRRs), their senior portfolio managers said on Wednesdady.
The following are remarks made by four institutional investors during a panel session at the global investment conference ASK 2025 hosted by The Korea Economic Daily:
PRIVATE CREDIT
TEACHERS’ PENSION: “Our fund is at an inflection point, shifting into a more mature phase. Liquidity management has emerged as a critical issue,” said Lee Hyojin, head of corporate finance team at Teachers’ Pension.
“Regular cash flow has become a priority. We are putting more focus on DPI than on IRR. We recently began to factor in DPI (for portfolio evaluations).
“Private equity portfolios are being reviewed under the same strategic lens. We need to maintain a certain level of liquidity across asset classes.”
MILITARY MUTUAL AID ASSOCIATION: “We will consider investing in subordinated and special situation strategies, as well as mezzanine and CLOs with a focus on Europe,” said Oh Young Jun, manager of corporate finance team 1 at the Military Mutual Aid Association.
“Private debt continues to offer predictable, stable returns. With rate cuts now underway, we see an opportunity to expand exposure to opportunistic and distressed strategies.”
“We will invest primarily through flagship funds.”
KYBO LIFE INSURANCE: “We will closely monitor DPI performance in private debt strategies,” said Cho Yunsam, general manager of overseas alternative investment team at Kyobo Life Insurance Co.
“While interest rates are falling, we do not anticipate a fall to zero rates. We believe this is the time to take an overly conservative stance and this may not be the right time to pursue major shifts.”
“Private debt will likely continue to demonstrate strong risk-adjusted performance going forward, despite expectations of interest rate cuts in Europe and the US. We will take a closer look at managers’ loss rates.”
HYUNDAI MARINE & FIRE INSURANCE: “The private credit market is expected to continue growing,” said Han Woong, head of private equity and private debt team at Hyundai Marine & Fire Insurance Co., adding that stability is its priority.”
“Despite some news from the US, mid-market private debt performance remains stable. We have invested in products backed by collateral structured with tight loan covenants.”
He referred to the collapse of US auto parts maker First Brands Group and subprime auto lender Tricolor in September, which raised concerns over the robustness of underwriting standards in the private credit market.
“Senior secured loans still account for a high portion (of private credit assets). We will avoid overconcentration in senior direct lending and gradually increase exposure to opportunistic credit, distressed assets, and asset-backed securities.”
“We are diversifying following (the adjustment to) K-ICS,” he said, in reference to the easing of the Korean Insurance Capital Standard (K-ICS), a financial soundness measure, in May.
The new framework has reduced the required solvency buffer for insurers, giving them more flexibility to invest in riskier assets following.
PRIVATE EQUITY
MILITARY MUTUAL AID ASSOCIATION: “We believe now is an opportune time to increase exposure to private equity. With interest rates declining, we expect a pickup in M&A activity, led by buyout deals.”
“DPI has become a critical benchmark for assessing private equity managers. As exit timelines extends, we are putting more focus on firms’ exit track records and their ability to initiate dividend payouts in a timely manner.”
“We will continue increasing allocations to equity strategies that deliver consistent dividend payouts.”
HYUNDAI MARINE & FIRE INSURANCE: “In an environment where interest rates are falling, geopolitical risks are growing alongside technology innovation, we find it difficult to make sudden shifts in investment strategy or asset allocation.”
“After a prolonged period of rising interest rates from 2022 through 2024, M&A activity slowed on concerns over elevated costs and pressured valuations.”
“But those concerns appear to be easing. There are growing expectations that valuations are normalizing. We are watching closely for signs of a rebound (in the M&A market), particularly in North America’s middle market.”
“We have been leaned heavily into secondary deals to offset the J-curve effect. But as allocations to secondaries grow, we are looking to increase exposure to buyout strategies.”
SAMSUNG ASSET MANAGEMENT: “Private equity valuations have notably lagged behind public equities. While the current freeze in M&A and IPO markets presents exit challenges, we will continue to invest in buyouts, particularly in the mid-market segment,” said Choo Sangbum, head of private equity investment team at Samsung Asset Management.
“Compared to large corporations, the mid-market features a higher concentration of local players, many of whom are less exposed to tariff disputes and currency volatility.”
“Despite strength in public markets, IPO windows remain tight. In this environment, mid-market companies offer greater agility and more flexible exit options than their large-cap counterparts.”
“High-performing mid-market buyout funds have begun selectively opening their doolr to new limited partners.”
“Underwriting risk increasingly is shifting toward investors. In this environment, we intend to invest only in products we can fully understand.”
PARTNERSHIP WITH GENERAL PARTNERS
TEACHERS’ PENSION: “Beyond simple products and performance metrics like IRR and DPI, general partners who shared our concerns and tried to help solve those challenges leave a lasting impression.”
MILITARY MUTUAL AID ASSOCIATION: “We would welcome differentiated offerings that stand apart from other GPs. As due diligence processes become more rigorous, timely and thorough delivery of requested materials will be key to facilitating stronger partnerships.”
HYUNDAI MARINE & FIRE INSURANCE: “Relationships with general partners are evolving into strategic partnerships. Investors are placing greater value on long-term philosophy and consistent communication over short-term performance.”
“In light of recent regulatory changes such as adjustments to K-ICS and relevant reserve requirements, GPs who can offer guidance are increasingly appreciated. It’s becoming a key differentiator. The capacity to support LPs, help us look through (the products), meaningfully matters more than ever.”
KYOBO LIFE INSURANCE: “We believe the quality of service could be further enhanced if they have professionals with deeper insights into the Korean market.”
“Following recent regulatory changes in Korea, full look-through transparency has become increasingly critical. Regardless of performance, we are unlikely to commit to future investments without full look-through transparency.”
SAMSUNG ASSET MANAGEMENT: “Tailored strategies that reflect each investor’s specific needs are becoming increasingly important. In that context, understanding our priorities is paramount—and effective communication plays a critical role in building alignment and trust.”
By Yeonhee Kim
yhkim@hankyung.com
Jennifer Nicholson-Breen edited this article.
