PEFs gain popularity among domestic investors

By Jhoo Dong-chan

An increasing number of domestic investors are putting their money into private equity funds (PEFs) amid the slump in Seoul stocks, despite the local PEFs being considered an investment source of high risks for high returns.

Investors are now eyeing them since they introduced a series of less risky fund products

Promising up to a 7 percent return, these funds have become popular especially among wealthy investors. Money entrusted to these funds has nearly doubled over the past four years.

According to the Financial Supervisory Service (FSS), domestic PEFs attracted 173 trillion won ($146.5 billion) as of the end of 2014.

The figure nearly doubled that over four years to reach 329 trillion won by the end of 2018. This is in stark contrast to the downtrend in the nation's public equity funds amid the sluggish local stock market.

A total of 182 trillion won worth investment was entrusted to public funds by the end of 2014, but the figure slid 10 trillion won during the period to 172 trillion won at the end of last year.

“More investors started eyeing corporate bonds and mezzanine funds due to growing uncertainties in the financial market,” said a domestic PEF official who asked not to be named.

“They want a steady return higher than the market interest rate. Domestic PEFs have boasted a strong return ratio in various investment sectors, perfectly fitting the demand.”

Hana Institute of Finance said in its recent study that 16.9 percent of survey respondents said they would invest their money in PEFs, higher than those investing in stocks and equity funds.

“It is a trend. Wealthy investors do not invest their money in stock-related investment sources due to growing uncertainties,” the study said.

“They now want to invest their money in alternative investment sources such as corporate bonds, real estate and foreign assets. Domestic PEFs are one of their best options.”

Along with an uptrend in domestic PEFs, investors have also displayed an increasing interest in investing in foreign funds. According to the FSS, 149 trillion won was invested in foreign funds as of December 2018, up 86 trillion won, or 138.4 percent, from December 2014.

Domestic PEFs have also emerged as major players in the nation's M&A market as big institutional investors seeking high-yield investment amid a prolonged economic slump have upped their investments recently.

Of the nation's major M&A deals that have been disclosed so far this year, PEFs have signed or are expected to sign on to 11 out of 18 deals each worth around 100 billion won.