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The Changing Landscape of South Korean Private Equity – March 2015

by Luke Goldsmith

  • 02 Mar 2015
  • PE

Over recent years, South Korea’s private equity industry has become increasingly prominent in the Asian market. In 2004, the government introduced regulation encouraging private equity and venture capital firms to start investing in the region, but it wasn’t until 2006 when the effects were truly recorded; a record amount of capital ($6.3bn) was raised from 25 funds that invested predominantly or solely in South Korea. That record still stands today, with no annual fundraising figures even coming close.

As seen in the chart above, post-2006 fundraising figures dwindled as a result of the global financial crisis, with figures picking up again in 2011 when 43 South Korea-focused vehicles raised $4.3bn. Last year nearly $3bn was raised by only 10 vehicles, representing the highest average fund size ($295mn) in the period and halting the previous two-year decline in aggregate value. Furthermore, whereas venture capital and growth funds with a technology focus dominated the South Korean market in the past, buyout and other similar funds with high investment tickets are becoming increasingly prominent. In 2014, venture capital and growth funds totalled just 40% of the number of funds raised focusing on the country, the lowest proportion seen since 2006.

Two funds that reached a final close last year are among the seven largest South Korea-focused private equity funds ever raised. Both funds were raised by Hahn & Company, with Hahn & Company II raising $1.2bn, and alongside it, Hahn & Company II Co-investment Fund managing to collect $700mn. The main buyout vehicle, Hahn & Company II, is interested in a variety of sectors including manufacturing, construction, materials, IT, technology and financial services, focusing solely on South Korea. Along with these two funds, there were a further two buyout vehicles, one balanced vehicle, an infrastructure fund, three venture capital funds and one growth vehicle with a focus on South Korea raised in 2014. 

Recently, the Financial Services Commission urged private equity firms outside the country to set up shop in South Korea in order to boost economic growth, and there is already evidence that this has started working. Signs are positive for the private equity industry in South Korea: in 2014, the highest ever proportion of funds was raised by foreign GPs (40%), and funds currently in market are targeting a total of $1.1bn – a marked increase on the $458mn targeted by funds in market this time last year.

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