Private Equity Funds
These days, private equity funds (PEFs) in Korea are increasingly utilized as a way of policy funding, because PEFs are highly market-friendly in attaining specific policy goals such as corporate restructuring, venture investment, and overseas market penetration. PEFs contribute to a reduction in the efficiency of policy funding as well, because the profits and losses are shared according to investment ratios.
It is because of these reasons that the Korean government’s corporate restructuring company, which was launched in Nov. this year, is to be run on a PEF basis. The government’s idea is to overcome the limitations of creditor-based corporate restructuring by means of the company, which purchases financial institutions’ distressed debts in the form of project funds, and then sells them back for profits after raising corporate value through business normalization. The company’s starting capital is estimated at 3 trillion won (US$2.5 billion), one third of it being invested by the nine institutions including banks and the Korea Asset Management Corporation (KAMCO), and the rest being procured by loans.
In the meantime, the Growth Ladder Fund, which supplies funds in step with the growth of small firms, gave rise to 4.4 trillion won (US$3.7 billion) of lower funds just a couple of years since its inception, to fulfill its role as a key venture capital firm enriching the venture ecosystem. Until the end of June this year, a total of 1.2 trillion won (US$1.0 billion) has been invested via the fund, 48 lower funds have been created, and private funds of 3.2 trillion won (US$2.7 billion) have been attracted from banks, pension funds, and other things. The Small & Medium Business Administration’s Fund of Funds for investment in small and venture firms and the Korea Development Bank’s Small & Venture Firm Support Program are being run on a PEF basis as well.
PEFs help large companies expand their businesses abroad, too. For example, the National Pension Service formed the Corporate Partnership Fund with 10 large corporations in 2011. In this fund, the National Pension Service acts as a financial investor for fund matching when a Korean company makes an investment or proceed with M&As abroad. Recently, CJ Korea Express made use of the fund in acquiring Rokin Logistics & Supply Chain in China at 455 billion won (US$385 million). Likewise, GS Engineering & Construction and POSCO took over Inima in Spain and made an investment in Canadian mines via this fund, respectively.