By Nam Hyun-woo
Homegrown private equity funds (PEFs) are expected to play a big role in corporate restructuring, with their number and investments growing fast last year.
According to the Financial Supervisory Service (FSS), Tuesday, the number of PEFs in Korea stood at 383 last year, up 69 from a year earlier. The number more than tripled from 110 in 2009, when the Financial Investment Services and Capital Markets Act took effect. One of the act’s main goals was to nurture buyout funds.
Their aggregate investments more than tripled in seven years from 20 trillion won ($17.66 billion) in 2009 to 62.2 trillion won last year. The invested capital also grew from 12.8 trillion won to 43.6 trillion won during the same period. The former is the amount that PEFs promised to invest while the latter is actual investments.
The FSS stressed that 109 PEFs newly opened in 2016, which is the first time the number topped 100.
“The industry is expected to grow further as alternative investment by institutional investors will increase, and the merger and acquisition (M&A) market has been expanding,” an FSS official said. “Market expectations are also rising on their stronger role in corporate restructuring.”
The FSS attributed the growth to the increase in general partners. General partners are in charge of managing a PEF, deciding which investments they will make and how to raise capitals from investors, called limited partners. General partners take unlimited responsibility over the results of the PEF, while limited partners take partial responsibility.
As of last year, the number of general partners in the country reached 190, up 23 from a year earlier.
Despite the growth, the newly committed capital in 2016 stood at 9.4 trillion won, down 0.8 trillion won from a year earlier. In other words, the number of market players jumped but the market size shrank. The FSS said a vast majority of new general partners came up with relatively small funds in 2016.
Last year, the accumulated PEF investment came to 8.9 trillion won, compared to the previous three-year average of 9 trillion won.