Korea witnesses growing co-investment opportunities: Adams Street Partners

The burgeoning co-investment market in South Korea has reached maturity enough to offer attractive opportunities for investors, US-based investment firm Adams Street Partners said Thursday.

Institutional investors that carry out co-investment strategies with its private equity fund managers in Korea and abroad are likely to take advantage of the private equity market in the fourth-largest economy in Asia, a trade powerhouse with growth potential in select industries, noted Dave Brett, partner and head of co-investments at Adams Street Partners.

“In Korea, we see attractive co-investment opportunities as it is a sizeable economy with high trade linkages,” Brett wrote.

“We see co-investment opportunities not only in traditional leveraged buyout transactions but also in growth deals leveraging healthcare research and development, e-commerce and social media.”

Moreover, favorable tax treatment for non-Korean private equity firms and increasing deals due to active corporate carve-outs among chaebol-owned companies offer attractive valuations, growth rates and risk profiles in Korea, in line with other Asian countries.

To name one of the advantages, non-resident investors in a private equity firm are not subject to a return-filing requirement or taxation other than withholding tax, as long as it does not have a permanent establishment in Korea.

“Korea’s tax regulations regarding private equity have become clearer and the (private equity) market continues to see active deals in corporate carve-outs and restructuring, business successions and transformations, and regional and global expansions,” Brett said.

Korea is also home to local private equity firms that serve as a general partner for institutional investors, which offer sophisticated co-investment deal opportunities and exit options at the same time.

“Within the general partner landscape, mid-market local buyout franchises are emerging, despite strong presence of global and regionals funds,” he said.

Adams Street Partners released a report earlier in March, titled, “Trends in Asia Co-Investments Maturing Markets and Growing Opportunities.”

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