A multi-faceted market

It is no surprise that any discussion on buyouts still features the early takeovers of distressed banks and bankrupt conglomerates but these are pretty much things of the past. The deals that followed were standard acquisitions of good companies that were transformed by their private equity owners into even better ones. Obviously, the market has transitioned many times.

Present day private equity in South Korea is a multi-faceted ecosystem, where local GPs and LPs compete with their international counterparts for allocations and deals. Some might argue this is not the case, but in the interests of the long-term health of the market, it should be. Dialogue between the different groups is therefore critical.

As with all developing markets, there are growing pains and as covered elsewhere in this magazine, a number of issues need to be tackled for the market to continue to mature. The (over) simplified answer - heard many times, having covered these markets for many years - is that development will take time, but fundamentally, an economy of South Korea's size will generate enough deals to sustain a private equity industry of reasonable size. The details differ in other markets but the message is the same: As with the entrepreneurs they seek to support, the best GPs will be able to compete effectively.

Take China, for example. While renminbi-denominated funds appear to be favoured by the majority of entrepreneurs, GPs managing US dollar vehicles - who offer the right combination of capital and value-add - are still investing prolifically into similar companies. In fact, with the current lack of liquidity in the public markets, local GPs are looking to work closely with their offshore counterparts. In time, similar things should happen in South Korea.

The same argument applies to fundraising for South Korea-focused vehicles. While local LPs have historically been the major capital providers for domestic funds, they are maturing fast and now making local and international allocations. This may create a void in the domestic fundraising base, but international LPs are well positioned to fill it. As it stands, they have allocated to few South Korean funds, largely put off by sparse track records. Once again, in time this should change.

Postscript: As I sit at my desk writing this viewpoint piece, I have just received a news alert saying that North Korea has warned foreigners in South Korea to take evacuation measures in case of a conflict on the peninsula. However, my conversations with Korean GPs in the past few days and as recently as this morning indicate that it is business as usual in Seoul. Most say the situation has been blow a bit out of proportion by the foreign media. Hopefully, any concerns will have abated by the time you read this.

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• Topics
• North Asia
• Buyouts
• South Korea
• buyout