NPS review of IGIS funds over security breach concerns casts doubt on Hillhouse takeover
Pension fund's withdrawal could slash company valuation, derail sale
IGIS Asset Management headquarters in Seoul / Courtesy of IGIS Asset Management
The acquisition bid for IGIS Asset Management, Korea’s largest real estate manager, by Hillhouse Investment, a private equity firm linked to Chinese capital, is facing a serious obstacle as national security breach concerns have surfaced in connection with the ownership sale process, industry insiders said Thursday.
Controversy erupted after it was revealed that an internal report detailing funds backed by the National Pension Service (NPS) had been shared with potential buyers during the sale process without the pension fund’s prior consent.
According to industry officials, NPS regards the unauthorized disclosure as an issue comparable to leaking national secrets and is weighing the possibility of withdrawing as much as 7 trillion won ($4.8 billion) from IGIS-operated funds.
Since NPS capital has long served as a key driver of IGIS’s growth, observers warn that Hillhouse’s position as the preferred negotiator could be threatened if the pension fund decides to pull its money.
Morgan Stanley and Goldman Sachs, the advisers on the sale, named Hillhouse as the preferred bidder for IGIS on Tuesday, overturning expectations that the deal would come down to a two-way contest between domestic insurers Heungkuk Life and Hanwha Life.
Sources in the investment banking industry said NPS raised concerns after discovering that IGIS had provided prospective acquirers with information related to its mandates since last year.
Sensitive data, including actual fund sizes, valuation metrics and asset-level issues reportedly surfaced during the due diligence process after being delivered to an accounting firm. Some funds were subject to agreements that prohibit any disclosure without prior approval from NPS.
IGIS executives met with NPS on Tuesday to explain how the fund-related information had been disclosed. However, NPS Investment Management convened its investment committee the following day to discuss whether to proceed with withdrawing its investments from IGIS.
If NPS decides to pull its capital entirely from IGIS-managed funds, the ownership sale is expected to face serious disruption, since a sharp decline in assets under management would significantly reduce the company’s valuation.
Data from the Korea Financial Investment Association showed that IGIS’ real estate fund assets totaled 26.25 trillion won as of Monday. Domestic assets accounted for 14.3 trillion won, and NPS mandates are estimated at around 2 trillion won. The amount could reach as much as 7 trillion won on an appraised basis, which raises the prospect that Hillhouse may need to revisit the terms of the deal, including valuation adjustments.
An NPS official said the pension fund “cannot comment on the report.”
Hillhouse was founded by Zhang Lei, a Singaporean national originally from China, and gained early prominence through early investments in major tech firms such as Tencent and Baidu.
As the firm expanded, it drew scrutiny from foreign media over alleged ties to senior Chinese officials. It has since diversified its investment strategy and grown into a global firm with more than 500 portfolio companies across 30 countries.
Meanwhile, Heungkuk Life announced plans for legal action, arguing that the process of selecting the preferred bidder “lacked both fairness and transparency.”
According to the insurer, Hillhouse initially submitted a bid in the mid-900 billion won range but significantly increased its offer to 1.1 trillion won after the advisers introduced a progressive deal. The approach asks short-listed bidders to raise their offers after the main bid, effectively turning it into an auction.
Heungkuk Life reportedly offered 1.05 trillion won, while Hanwha Life submitted a bid in the high-900 billion won range.
“The sellers had promised before the main bid that no progressive deal would be used, but later delayed naming a preferred bidder and asked only Hillhouse to submit an additional offer. The advisers may have leaked our 1.05 trillion won bid to Hillhouse,” a Heungkuk Life official said.
The official called the outcome "a joint creation by a China-linked private equity fund eyeing Korea's real estate investment platform and foreign advisers driven by performance fees."