Experts call for diversifying investors, expanding overseas networks for more growth
By Jun Ji-hye
Korea’s private equity market has experienced dramatic growth over the past 20 years, since the country implemented the Indirect Investment Asset Management Business Act in 2004 to allow domestic capital to enter the corporate restructuring market.
The law was introduced following the 1997 Asian financial crisis to improve the structure of the market, which had been nearly monopolized by foreign capital.
Although still relatively new compared to global private equity firms (PEFs) with over a century of history, the domestic market is now considered to have reached a certain level of maturity, both in terms of market size and operational capabilities of general partners.
Since two funds were established with a total size of 400 billion won ($280 million) in the first year of the new law’s implementation, committed capital has surged to 136.4 trillion won, with the number of funds reaching 1,126 as of last year, according to the Financial Supervisory Service (FSS).
This represents average annual growth rates of 20.6 percent and 27.1 percent, respectively, over the 19 years from 2005.
Last year, domestic PEFs executed investments amounting to 32.5 trillion won across 443 companies. They also recorded the highest-ever capital recovery of 18.8 trillion won, as the previous investments accumulated.
MBK Partners, Hahn & Co. and IMM Private Equity, among other domestic PEFs, have expanded significantly and established themselves in the market.
According to FSS data, Hahn & Co. ranked first in committed capital as of last year with 13.6 trillion won, followed by MBK Partners with 11.84 trillion won, IMM Private Equity with 6.47 trillion won and IMM Investment with 5.58 trillion won.
The KOSPI, the won-dollar exchange rate and the Kosdaq are displayed on an electronic board in the dealing room of Hana Bank’s headquarters in Seoul, Dec. 9. Yonhap
Since 2021, however, the domestic private equity market has been undergoing a period of adjustment following reform measures aimed at strengthening investor protection in response to the mis-selling of problematic funds such as Lime and Optimus.
The fundraising volume amounted to 18.7 trillion won last year, reflecting a slight decline from the 2021 peak of 23.5 trillion won.
But experts noted that the funding environment is expected to improve starting this year, with Korea and the United States moving to lower benchmark interest rates.
“Although the private equity market has been sluggish, the influence of key macroeconomic variables surrounding the capital markets is diminishing. As we approach the end of the year, uncertainties related to political events, such as elections in various countries and the U.S. Federal Reserve’s interest rate decisions, are gradually being resolved,” said Oh Sun-joo, a senior official from Samil PwC Business Research.
“A gradual recovery in private equity investments is anticipated, with a particular focus on promising sectors such as semiconductor materials, parts and equipment as well as artificial intelligence and health care.”
To achieve further growth, experts advise diversifying the types of investors and strengthening overseas investment networks.
Park Yong-rin, a senior researcher at the Korea Capital Market Institute, said new sources of capital must be explored, pointing out that a lack of diversity in investors could undermine the stability and continuity of fundraising if issues arise with managing funds from a specific type of investor.
“Overseas markets are composed of a wide range of investors, including public and private pension funds, financial institutions, corporations, university endowments and family offices. In contrast, domestic institutional-only private equity funds tend to define their investor scope somewhat narrowly, so it is necessary to consider expanding this scope in the future,” Park said.
The researcher also emphasized the need to expand overseas investments and establish offshore funds to attract foreign investors.
“There are several ways to expand overseas, including investing in overseas markets through onshore funds, co-managing offshore funds, forming offshore funds and attracting overseas limited partners,” Park said.
“These are essential steps to eventually advancing into regional and global private equity in the medium to long term.”
