Korea private equity attracts local LPs

Seven years after the first private equity funds were established in Korea, domestic firms have attracted significant capital. But investing it is another story.

Korea's total domestic funds in market reached 33 trillion won (€22 billion; $29 billion) in January, according to data from Korea’s Financial Supervisory Service, which was cited in local reports. 

The surge in fundraising represents a 40 percent annual growth rate since the end of 2006 and the total is expected to reach 50 trillion won by 2014, the FSS noted.

Regulations permitting domestic private equity came into force in 2005. By mid-2011, the number of domestic firms reached 167, according to Korea’s Financial Services Commission.

The local firms by definition have short track records and operate in a deal-making environment that is tough enough for seasoned firms. 

Nonetheless, these firms have been capitalised mainly by large domestic LPs. In fact, Korea’s National Pension Service, the biggest domestic pension fund, revealed it would increase commitments to alternatives, from 5.7 percent in 2011 to 10 percent by 2016, according to local reports.

NPS and some other institutional investors recently said they plan to increase overseas allocations. But post-financial crisis, in the 2008-2010 time frame, Korea’s domestic LPs put the brakes on international commitments to global houses, an industry source told PE Asia

“All that capital has gone in domestically to Korean local GPs. $30 billion has gone in last cycle and only about $14 billion was actually able to be deployed by local GPs. They have huge capital overhang.”