GPs' optimism: Korea redux

This period was followed by a spate of buyouts PE investors helped Korean companies grow in a meaningful way. Deals representative of this stage included Hi-Mart and Faceshop, both of which were exited to strategics for great returns.

Around 2006, however, the country began to lose its international luster. Local conglomerates began to embrace the private equity funds (PEFS) structure and PE investment became a largely local affair, with the 2009 buyout of Oriental Breweries by KKR and Affinity Equity Partners one of few exceptions.

As documented in AVCJ, we are now seeing another wave of deals, which suggest that South Korea is coming back as a market for international private equity investors. Certainly, on my recent visit to Seoul there was a distinct feeling of optimism among both GPs and LPs.

There are several reasons why more than $4.5 billion has been racked up in private equity investment so far this year. Yes, chaebols, particularly the smaller ones, are more willing to do business with private equity. In fact, one fund manager went as far as saying that many executives at second- and third-tier conglomerates are beginning to see PE as a solution to their liquidity problems.

Another key factor is the wider availability of financing from Korean banks. Local lenders are hungry for deals and will go as far as investing into PEFs to help them secure business for their project finance divisions. Most of the recent large transactions were executed by firms that are either local or have been doing business in Korea for some time.

Finally - and, in the long term, perhaps most significant - South Korea's renewed vibrancy is a function of the fact that the country is now part of the mainstream fundraising circuit. The National Pension System (NPS) remains the biggest LP but there are others like Korea Post and Military Pension that are becoming increasingly influential. Of course, there is also Korea Investment Corporation (KIC), but it's overseas-only mandate means it is off limits to the domestic GPs.

That's only the tip of the iceberg, according to local GPs I met. Financial institutions are becoming active. In addition to the local banks, insurance companies are searching for alpha with private equity funds. It is no wonder that gatekeepers and fund-of-funds have been aggressive in this area. I'm told that virtually all Asia-focused fund-of-funds are now hiring or have already recruited Korean professionals to help with market access.

LP support of Korean funds also goes down to the venture capital level. The Korea Venture Investment Corporation, the government backed fund-of-funds that targets local VCs, has invested in more than 230 funds managed by 70 GPs. As a result, Korea has become the third largest market globally for venture investment after China and the USA.

While most of the Korean GPs I spoke to remain modest, all are quietly confident about the future of the asset class in the land of the morning calm. Only time can tell if South Korea will once again be a sweet spot for buyouts, but its chances seem better than many other Asian countries.

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