South Korean private equity funds lead in domestic buyout market

By Nicel Jane Avellana

Dec 26, 2013 07:05 PM EST

Just nearly ten years after the first private equity fund was established in South Korea, local players now lead in the domestic buyout market, the Financial Times reported. Encouraged by the government that wants to develop the industry as one important source of corporate funding, there are now about 230 private equity groups in the country collectively managing assets worth around KRW 42.3 trillion or $39 billion, the report said citing data from the Financial Services Commission.

Majority of the deals done in the country were led by local firms MBK Partners and Vogo Fund which were both established in 2005. MBK is the current leader, with assets under management amounting to $7.5 billion. This year, MBK bagged the large private equity transaction with its $1.7 billion acquisition of ING's Korean life assurance unit. Earlier in 2013, MBK also bought South Korea's largest water purifier maker for a price tag of KRW 1.2 trillion. MBK has acquired 21 firms since it was established.

However, the report said that although MBK's managers are local, a substantial chunk of foreign money from the Ontario Teachers' Pension Plan was used when it was founded. The private equity group which was formed by former managers of Carlyle now holds about three-quarters of its funds mostly coming from pensions and sovereign wealth funds abroad.

Meanwhile, foreign private equity groups have not been as prolific as their local counterparts. Deals, such as the $84 million purchase of Monalisa, a tissue maker, by Morgan Stanley Private Equity and the majority stake purchase of Loen Entertainment by Affinity Equity Partners for $237.5 million, have been small.

However, Vogo Partner Lee Jae-Woo said local private equity groups also do not have the experience in handing large transactions as limited financing confines them to smaller deals. He told the Financial Times, "Most of them have trouble in raising blind pool funds as Korean institutional investors prefer specific project-targeted funds or mezzanine-like structures due to their limited risk appetite.The exceptions are the firms like MBK and Hahn & Co, which bring capital mostly from foreign investors."

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