With the stock market failing to show a clear direction, private equity funds are becoming more and more popular this year. This is because financial products which provide a stable return regardless of market conditions are in high demand among big investors. Securities companies are also joining hands with asset management companies and investment banks (IBs) to release a wide variety of private equity fund products.
The amount of capital inflow into public offering funds came to 8.33 trillion won (US$7.33 billion) in the first quarter of this year, while that for private equity funds totaled 16.22 trillion won (US$14.26 billion), according to the Korea Financial Investment Association (KOFIA) on April 4.
The amount of investments in private equity funds was almost twice that in public offering funds. In particular, public offering funds saw their capital flow out by 1.59 trillion won (US$1.40 billion) and 7.67 trillion won (US$6.74 billion) in February and March, respectively, while private equity funds showed a capital inflow of 6.65 trillion won (US$5.85 billion) and 8.13 trillion won (US$7.15 billion) over the same period. The amount of net assets of private equity funds and public offering funds stood at 353 trillion won (US$310.47 billion) and 247 trillion won (US$217.24 billion), respectively, as of March 3. Notably, the figure of private equity funds sold at large securities firms was much higher than public offering funds.
Private equity funds are gaining popularity because investors are disappointed with the earnings rate of public offering funds in the past few years and asset management companies are launching competitive products thanks to the government’s private equity fund activation policy. A case in point is Mezzanine funds which invest in absolute return funds, convertible bonds (CBs) or subordinated bonds through the long shot strategy regardless of the direction of stock or bond markets. Real estate mortgage funds with a maturity of two to three years, which hold real estate in core areas as collateral, are especially popular.
When asset management companies which show a high rate of return release funds or marketable fund products, they are instantly sold out. One of the key examples is private equity funds launched by SsiAat Asset Management Co. As the asset manager made good profits even despite the bearish stock market in the second half of last year, sellers are waiting for the release of new fund products by the firm. Sellers sold private equity funds only to customers who had at least 1 billion won (US$879,894) of subscription money at the beginning of the year but Mirae Asset Daewoo Co. and Samsung Securities Co. recently launched the products with a subscription capital of 500 million won (US$439,947). As KB Securities Co. recently released a trust product, which invest in trade finance bonds, and investors piled into the product, the firm sold it only to customers who had more than 200 million won (US$175,979) of money.