‘Korea’s private equity market hindered by chaebols’

Foreign investors have a hard time navigating South Korea’s “unique” private equity investment landscape, having to face obstacles such as family-run conglomerates’ dominance in the domestic industry, a private equity professional said in a virtual seminar on Thursday.

“South Korea is very unique market,” Chue En Yaw, managing director and head of private equity funds at Temasek-owned Azalea Asset Management, told audience of the virtual seminar hosted by capital market intelligence firm Preqin.

“You have the language barrier, you have all the chaebols controlling the conglomerate and efforts to try to break up the chaebols,” Chue added.

Korea’s tricky landscape meant he would rather turn his attention to the country’s East Asian peer, Japan, where corporate carve-outs are actively playing out and open access to such opportunities are abundant.

Investors keen on the Korean private equity market, however, should steel themselves to get around the hurdles.

“I think you need to find managers with right connections within the country to navigate all the different bureaucracies and business dealings,” Chue said.

The fourth-largest economy in Asia, from the perspective of foreign private investors, has often been perceived as a private equity market with a lack of standardized reporting practices and inconsistency in the portfolio valuation methodology.

The webinar, on the other hand, showed that Korea was emerging as a fundraising powerhouse for private funds last year despite challenges posed by the COVID-19 pandemic.

Preqin’s estimate showed that Korean managers raised the second-largest capital after China among Asia-Pacific countries to invest in private equities, venture capitals and private debts in 2020.

A select number of mega-sized funds buttressed the trend. Seoul-based private equity firm MBK Partners closed its fifth fund with a $6.5 billion commitment, contributing to a third of $20 billion raised by Korean managers last year, data showed.

“We see that this trend of capital consolidation is something that we have observed over the last few years, but became even more pronounced in the pandemic situation,” said Jie Sin Chia, head of product management at Preqin.

Preqin’s data also indicated that the Asia-Pacific region had a total of $1.3 trillion worth of assets under management for private equities, venture capitals and private debts. Moreover, Asia-Pacific was the only region that saw an on-year increase in the value of private equity-backed buyout deals in 2020 to $86 billion, bucking the global deal-making trend that was on the decline.

By Son Ji-hyoung (consnow@heraldcorp.com)