Korea's PEF market gains traction on increased business scope

The balance in private equity funds in Korea reached 116 trillion won ($91.76 billion) at the end of last year, adding 20 trillion won from a year ago as the market gained traction through lifting in investment restrictions through amendment in the Capital Market Act.

According to the Financial Supervisory Service data, the balance in registered closed-end PEFs totaled 116.1 trillion won at the end of December last year.

The FSS discloses PEF status quo after updating new funds and counting out liquidated funds.

Funds that carried out investment reached 87.4 trillion won to show an execution rate of 75.3 percent, up 2.7 percentage points from a year ago.

Last year was a record-setting year for PEFs, with 316 newly created, 107 dissolved, and total investment amounting to 27.3 trillion won, the FSS added.

PEF has gained traction from regulatory easing. Under the revised the Capital Market Act, PEFs have become free to use the funds to invest in small equity stakes and real estate properties and lend when partners are limited to institutions. The 10 percent rule under which PEF must send an outside board to the company of ownership of more than 10 percent has been scrapped.

PEF contracts gained 20 percent on year last year, faster than 14.7 percent gain in the previous year.

Amid increased business scope, PEFs have added credit and loan business and been more active with small equity investments unrelated to management.

IMM Holdings behind IMM Private Equity founded IMM Credit & Solutions (ICS), which invested as big as 40 percent stake in SK lubricants for 1.1 trillion won and as small as 100 billion won in W Concept.

STIC Investment, VIG Partners, Glenwood PE, and Keistone Partners, opened credit business. According to the FSS, nine PEFs were newly established for purposes other than participation in management. Their contracted amount was 361.1 billion won.

The investment banking industry sees more room for growth in the PEF market in Korea, as institutional investors’ investment in PEFs is relatively lower than in other nations. According to a consulting firm, Bain & Company, the CPP Investments under Canada Pension Plan placed 21.8 percent investment in PEFs. Korea’s National Pension Service had 4.3 percent of investment in PEFs, slightly up from 3.4 percent five years ago.

제니2 그림

Amount of private equity contracts

*Number of private equity funds in parentheses

*Source: Financial Supervisory Service

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