Key Trends in South Korea

by Katie Jung

  • 19 Nov 2018
  • PE
  • VC
  • HF
  • PD
  • RE
  • INF
  • NR
  1. With their increasing sophistication, Korean LPs continue to expand their overseas alternatives allocations.
    • The growth of investors’ overseas alternatives allocations is outstripping that of their domestic allocations, fuelled by limited opportunities onshore and increased familiarity with foreign markets.
    • Investors seek strategic partnerships with GPs – LPs see the value of building long-term partnerships with GPs that are well-suited for them.
    • Investors believe that language and cultural barriers remain an issue – GPs that can overcome such hurdles and commit to the local market will be at an advantage.
  2. Government initiatives pave the way for the domestic alternatives landscape.
    • The Korean Government introduced private equity funds in 2004 to protect domestic assets from too much foreign influence and ‘predatory’ capital in the aftermath of the Asian Financial Crisis.
    • In 2015, the government simplified and eased regulations on entry, establishment, operation and sales of private funds.
    • The venture capital industry is strongly backed by the government. In addition to continuous budget injection, the Ministry of SMEs and Startups was found to support the domestic venture ecosystem.
  3. Domestic private equity offers distinct buyout opportunities.
    • The domestic private equity industry offers unique buyout opportunities, driven by large conglomerates’ voluntary sales of non-core businesses as they prepare to stay competitive.
    • Mid-market control buyout deals are less competitive and crowded, and asset valuations are less elevated.
    • In 2017, capital distributions exceeded capital contributions for the first time in the past decade, a key driver that will likely stimulate fundraising in the market.
  4. The real estate market becomes more accessible to foreign investors.
    • As experienced fund managers are starting to raise Korea-focused blind-pool funds, this has provided a more efficient avenue for global investors into the Korean real estate market.
    • Despite the high valuations globally, with its capitalization higher than other Asian peers’, core real estate in Korea still offers attractive opportunities.
    • GPs are moving up the risk/return spectrum – more value-added funds appear in the market in response to LPs’ demand for higher returns.
  5. Technology and innovation are driving the venture capital industry.
    • Korea intends to facilitate an innovation ecosystem for tech-driven start-ups to prepare for the fourth industrial revolution.
    • In 2017, IT services attracted the most investment, followed by retail/services and biotech/medical (according to Korea Venture Capital Corp.)
    • Investment in the fintech sector has risen 3280%, from KRW 3bn in 2014 to KRW 98.4bn in 2017 (according to Seoul Metropolitan Government).

This excerpt is taken from Preqin Markets in Focus: Alternative Assets in South Korea. Please follow the link to download your copy of this report.

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