Competition among private equity fund (PEF) operators in South Korea to attract social and public funds will likely heat up as institutional investors, including the nation’s biggest investor National Pension Service (NPS) and state-run Korea Development Bank (KDB), are expected to start to pick PEF operators that will manage their funds estimated at around 1 trillion won ($868 million) next month.

According to sources from the investment bank industry on Thursday, the NPS, also the world’s third largest pension fund with an asset of over 500 trillion won under management, is expected to embark on the process to select PEF and venture capital (VC) managers that will manage its capital allocated to private equity fund investment. The NPS named four private equity firms last year to run 700 billion won for its blind funds - two PEFs investing in large-cap companies and the other two in mid-sized companies. The state-owned organization that had picked new PEF operators every two years until 2015 changed its regulation last year to invest in new PEFs every year.

KDB, which allocated 590 billion won last year to outside PEF operators, is also expected to announce this year’s plan for PEF investment and fund operator selection process next month.

Other local institutional investors will likely join the NPS and KDB after the two big investors pick their PEF operators. The amount of total funds to be allocated to external PEF operators by social and public funds this year are, however, expected to be 20 to 30 percent less than last year’s 1.5 trillion won as some institutional investors have no fixed plans for PEF investment or have decided not to invest in PEFs.

The Military Mutual Aid Association (MMAA) has already named fund operators to invest 80 billion won in three PEFs for this year. The Korea Teachers Pension Fund (KTPF) has no plans for PEF investment this year, while the Korea Scientists & Engineers Mutual-aid Association (SEMA) is mulling selecting fund operators in the second half of this year that will likely raise about 60 billion won in blind PEF operator.

By Kang Doo-soon and Song Gwang-sup

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